New World Development Grapples with Credit Stress as Asset Pledges and Funding Retreat
Hong Kong's New World Development Co. faces mounting credit stress, evidenced by its pledging of prime assets as collateral for loans and the withdrawal of financing support from brokers.
Asset Pledges for Refinancing
The company, controlled by the Cheng family, has offered properties valued at $15 billion as security for loan refinancing, marking the largest asset pledge by any of Hong Kong's top billionaire families for such a purpose. The move highlights the challenging funding conditions confronting New World.
Refinancing Loan Details
New World has requested a three-year facility backed by over 20 properties to refinance HK$58.1 billion ($7.5 billion) of unsecured loans maturing in 2025 and 2026. This would reduce the assets available to unsecured bondholders, who have sold off New World notes, driving some to distressed levels.
Broker Pullback
UBS Group AG has ceased accepting New World bonds and shares as collateral for margin loans. Citigroup Inc. and HSBC Holdings Plc have also suspended lending on New World securities.
Management Turmoil
New World has been engulfed in turmoil amid investor concerns about its debt burden, one of the highest among Hong Kong developers. The company has seen three CEOs in two months as Cheng seeks to stabilize its operations.
Collateral Offering
New World plans to offer valuable properties as collateral for refinancing, including the K11 Artus serviced apartments, the K11 Atelier King's Road office building, and the New World Tower in Central. This move aims to gain support from lenders, given that the collateral value exceeds the loan amount.
Debt Restructuring and Covenant Relaxation
The company has denied any plans for holistic debt restructuring but has secured relaxation of a debt-related covenant from bank lenders regarding its gearing ratio.
Market Response
New World's bond prices remained stable despite a decline in some dollar notes the previous day.