Hong Kong’s Sogo department store refinances loan at last minute

[HONG KONG] The operator of Sogo department stores in Hong Kong refinanced a loan backed by its Causeway Bay flagship just hours before a deadline, sources familiar with the matter said, adding to signs of lender caution towards commercial real estate in the city.

Lifestyle International secured HK$6.4 billion (S$1.1 billion) from 19 banks, according to the sources, who asked not to be identified discussing private matters. That’s short of the roughly HK$6.75 billion outstanding on the original loan that comes due Thursday (Jun 18). The company will cover the shortfall with its own cash, the sources said.

The eleventh-hour deal and funding shortfall highlight strains in Hong Kong’s commercial property market after a years-long slump that’s increasingly prompted creditors to hold off as long as possible before rolling over debt. It caps months of negotiations for the company owned by Hong Kong tycoon Thomas Lau Luen-hung, removing repayment risks for now.

Another similar example came last month, when hotel operator Asia Standard International needed until the last minute to refinance a HK$760 million borrowing despite months of negotiations.

Hong Kong’s retail sector has continued to grapple with strains even as green shoots appear, in contrast to a broader rebound in the residential housing market.

Private retail properties’ rents fell about 2 per cent from a year earlier in April, while prices slumped roughly 14 per cent, according to government statistics.

As for the business of retail, department store sales fell 6.7 per cent that month, even as sales across the broader sector rose 8.6 per cent on stronger tourism and holiday spending.

There were other signs of hesitancy among some creditors in Lifestyle’s refinancing, which will help repay most of the original five-year loan taken by its subsidiary Future Develop. The company brought in several new lenders after other banks exited their positions, the sources said.

Lifestyle International did not immediately respond to a request for comment.

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The deal follows an April pledge by chairman Lau to buy the full outstanding principal of a US$350 million bond with a 4.8 per cent coupon ahead of its maturity, underscoring his personal backing for the company. Lau took Lifestyle private in 2022 in a HK$1.9 billion deal. BLOOMBERG