New World must reckon with US$6.8 billion of bonds after swap
China’s property debt crisis has sparked record defaults and unprecedented restructurings
[HONG KONG] Distressed Hong Kong developer New World Development’s bond swap plan is set to trim about US$1.2 billion from the company’s debt pile, but it is still facing liquidity strains with one of the heaviest debt burdens of any builder in the city.
New World proposed the plan last month and set a goal of issuing up to US$1.9 billion of new debt in exchange for existing notes, but it fell short of that amount as it did not attract full support from creditors. That leaves further work for the builder to manage its US$6.8 billion in existing bonds, according to Bloomberg-compiled data.
The company said late on Wednesday (Dec 3) that holders of certain perpetual and conventional bonds had agreed to swap US$2.53 billion of existing notes for US$1.36 billion of new debt. That is about 72 per cent of the maximum amount under the plan.
The swap was the latest effort by New World to lighten its debt load as it continues to grapple with a prolonged property downturn in Hong Kong and mainland China. The firm closed a record US$11 billion loan deal in June and secured a HK$3.95 billion (S$658 million) facility backed by its flagship asset, Victoria Dockside, in September. That helped relieve strains, but in the absence of further property market recovery or more asset sales, New World could face renewed pressure down the line.
The debt swap plan asked bondholders to accept cuts of up to 50 per cent in the face value of their holdings, but provided added security from cash flows tied to Victoria Dockside.
“If they still want to reduce the perpetual bonds, having another tender with better terms might be an easier option,” said Daniel Fan, a credit analyst with Bloomberg Intelligence, adding that another round of tender plan could come a few months later.
The stakes are high given New World’s total assets of some US$54 billion, equal to roughly one-tenth of Hong Kong’s annual gross domestic product. Any high-profile stumble or restructuring by a major Hong Kong developer of that size would threaten to tarnish broader investor confidence amid a still-fragile property market.
The fundamental question at the heart of cases such as New World’s is whether the Hong Kong and mainland China property markets will bounce back soon, said Zhi Wei Feng, senior credit analyst at Loomis, Sayles & Company.
China’s property debt crisis has sparked record defaults and unprecedented restructurings, as builders face continued challenges with sales. Hong Kong’s commercial property market in particular, has deepened concern among bankers and regulators in the city.
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Founded in 1970 by Cheng Yu-tung, a former gold shop apprentice from Guangdong province in mainland China, New World is one of Hong Kong’s “Big Four” property developers. The company rose to prominence during the city’s real estate boom, but as the slump has deepened in recent years, it has been left more exposed than some of its rivals.
The builder earlier extended an early-bird incentive to all bondholders who agreed to join before the December deadline. Even without full participation, the debt swap will proceed as the minimum acceptance threshold has already been met. But the more support it gets, the more of its debt it can effectively cut. BLOOMBERG
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