Bankers on Edge about New World Development $11 Billion Loan Deal

After years of aggressive debt-driven growth, New World has faced continuous challenges amid the real estate recession in Hong Kong and mainland China.

Hong Kong builder New World Development is nearing the finalization of a critical lifeline in a struggling market after securing written commitments from all banks for an HK$87.5 billion (US$11.1 billion) loan refinance.

New World has agreed to refinance after months of discussion about a debt package that would save it. It marks one of the biggest of its kind in Hong Kong.

The deal has little time to spare. Documentation shows that the refinance might fail if the company does not receive 100% approval by June 30. In that case, the bank would release the collateral and cancel the deal.

Sources verify that the deal is almost over. Lenders will sign the loan agreement shortly. It is a relief as investors are keeping a careful eye on debt deadlines, including interest payments on three local currency bonds worth US$9.2 million due on Friday and Monday.

Once the deal is closed, it will grant New World some temporary rest.

After years of aggressive debt-driven growth, New World, controlled by the family empire of Hong Kong tycoon Henry Cheng, has faced continuous challenges amid the real estate recession in Hong Kong and mainland China.

The refinancing agreement will postpone HK$63.4 billion in borrowings that mature this year, extending the maturities by three years. The HK$24.1 billion in loans matures in 2027, but New World would need additional collateral and add some credit enhancements.

New World did not answer the request for comment.

The developer has added 40 of its properties, including its headquarters building, New World Tower, and second-ranking mortgage on its commercial complex on the city’s waterfront, Victoria Dockside, as part of its refinance collateral list. They have also included a letter of reassurance from Chow Tai Fook Enterprises Ltd.

This deal buys time rather than peace. The company is under pressure to sell off assets and raise $2 billion to meet its outstanding maturities.

In May, New World delayed paying interest on $3 billion in perpetual bonds. Investors are concerned about whether the company can clear its debt, especially when it postpones interest payments on four perpetual bonds.

According to the calculation, the developer owes HK$11.5 million for the coupon payment on a 4% Hong Kong dollar note, HK$36.7 million on a 4.89% security, and HK$24 million on a 4.79% security on Monday.

These commitments are on regular bonds that do not have an option to postpone payments. Earlier this month, New World also paid interest on another standard $1 note.

To close the deal, it coordinated with lenders like HSBC and the Bank of China. CEO Echo Huang framed the deal to show his confidence in New World’s operations, but analysts claim that it is non-negotiable for them to reduce their debt and improve their cash flow.

Attention is now on whether the builder will be able to raise an extra HK$15.6 billion through a loan backed by Victoria Dockside’s first-ranking mortgage. The developer will use a part of the proceeds to settle for the refinance deal.

Already, Hong Kong has challenges with its real estate scenario. The value of real estate has decreased by almost 30% since its peak levels, and the rate of negative equity is rising. Many mid-sized developers are facing tighter terms or no-refinancing alternatives due to at least $22 billion in debt.

Since the global financial crisis, the loan-to-deposit ratio has fallen to its lowest levels. There is some indication of improvement in interbank rates, tax breaks, and a resurgence of interest in mainland buyer. But it is not a sign of a comeback. It is still unclear as to when the light is at the end of the tunnel.