Hong Kong's New World secures two yuan loans to lower funding costs, source says
HONG Kong property developer New World Development this month secured two onshore loans totalling 1.4 billion yuan (S$259.2 million) as it seeks to further lower funding costs, a source with direct knowledge of the matter said.
The loans, which are a 12-year one billion yuan loan and a 15-year 400 million yuan loan, carry an interest rate of 3.1 per cent and 3.15 per cent, respectively, according to the person.
New World declined to comment on the loan details.
New World has one of the highest debt ratios in the financial city’s property sector, and its deleveraging plan has been in the spotlight in the past year.
A few of its perpetual and longer-dated bonds are still trading at distressed levels, but many have recovered from lows hit last year.
Banks in Hong Kong have been cutting their loan exposure to the commercial real estate sector due to a plunge in valuations and occupancy rates, and the lending rates are also higher than onshore after a series of rate hikes.
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New World’s new yuan loans are pledged to the firm’s flagship K11 projects in mainland China, said the source, who declined to be named because the information is confidential.
The yuan loan rates compare to the average interest rate of the company’s offshore loans at close to 6 per cent.
New World said last month it had increased the proportion of yuan loans to reduce its overall financing costs, including raising two onshore loans totalling 2.6 billion yuan in the first six months.
Including the new yuan loans and other refinancing offshore, the developer has completed HK$10 billion (S$1.7 billion) worth of loan arrangements and debt repayments in July, the source said, following US$4.5 billion completed in the first half.
New World reported earlier this year its financing costs from continuing operations rose 17 per cent in the six months ended December 2023 to HK$2.5 billion, due to an increase in interest rates.
Natural hedge
Due to higher US dollar interest rates and a weaker yuan, other Hong Kong developers are also increasingly turning to other yuan-denominated channels besides bank lending, including issuing asset-backed securities and panda bonds in mainland China, as well as dim sum bonds in Hong Kong.
“A natural hedge makes sense, because some developers have around 30 to 40 per cent of their assets in mainland China,” said UBS analyst Mark Leung.
“If they still mostly use dollar funding they’d be ‘double-hit’, which is renminbi depreciation and rising US dollar interest rates.”
Leung expects the trend of more yuan fundraising will continue in the longer term as the currency is expected to be under pressure. REUTERS
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