
18th January 2025 – (Hong Kong) Following its removal from Hong Kong’s blue-chip index, New World Development (NWD) finds itself in a precarious position akin to that of a distressed seller trying to liquidate assets. Despite efforts to sell off prime holdings, the company continues to grapple with a substantial 27% drop in total assets, now standing at HK$445 billion. Furthermore, its formidable debt burden remains high at HK$220 billion, with additional risks posed by perpetual bonds that could potentially lead to a collapse of its financial structure.
JP Morgan’s ruthless assessment puts NWD’s adjusted debt ratio at a suicidal 85%. Even with the Hong Kong Monetary Authority strong-arming banks to keep the life support running, the perpetual bondholders are circling like vultures. They’re not bowing to regulatory pressure, and why should they? When NWD skips redemption on that 6.15% perpetual bond in March, the interest rate jumps to 10.4% – another HK$116 million noose around the company’s neck.
From a peak market value of HK$200 billion, NWD has crashed to below HK$13 billion – a 93% wipeout that makes cryptocurrency look stable. UBS’s analysis shows NWD needs HK$24 billion annually just to keep treading water.
So what’s left? The nuclear option: selling the family silver. We’re talking K11 MUSEA, that gleaming temple to luxury retail that cost HK$10 billion to build. The K11 Art Mall, once the crown jewel of Adrian Cheng’s cultural-retail vision. Even the New World Tower in Central might have to go under the hammer. However, here’s the cruel irony – even this fire sale might not be enough. The property market’s in the doldrums, and everyone knows NWD’s desperate. Vulture funds are already circling, expecting bargain basement prices. Each distressed sale will likely trigger further write-downs across the portfolio, accelerating the death spiral.
The perpetual bond situation is particularly toxic. These instruments, once a clever way to dress up debt as equity, have become a noose. The market’s already pricing in default – some bonds trading at 60 cents on the dollar. When March hits and that interest rate jumps to 10.4%, it’s game over.
Rights issue? Good luck with that. Major shareholder Chow Tai Fook already bailed out NWD by buying NWS Holdings shares. They’re unlikely to throw good money after bad, especially when the share price resembles a penny stock.
Adrian Cheng’s departure as CEO speaks volumes. The third-generation scion who dreamed of turning NWD into a cultural enterprise powerhouse has left the building, leaving others to clean up the mess. The rapid-fire CEO changes since – three in as many months – suggest nobody has a viable rescue plan.
The most likely endgame? Default followed by debt restructuring. Bondholders will probably end up as shareholders through debt-to-equity swaps, existing shareholders will be virtually wiped out, and the Cheng family’s empire will shrink dramatically. It’s not the end anyone wanted, but it might be the only way for New World to survive in any form.
Even blue-chip companies can fail when debt intersects with economic downturns. NWD’s dependence on leverage, obscured by perpetual bonds and intricate financial engineering, has finally taken its toll. The key question now is whether anything will remain after the creditors have taken their cut.
DISCLAIMER: This article provides analysis based on public information and does not constitute investment advice. All content about New World Development (0017.HK) is for informational purposes only. Consult qualified financial advisors before making any investment decisions. Market conditions can change rapidly, and past performance does not guarantee future results. No liability is accepted for investment decisions made based on this content.
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