New World Development is offering to put some of its flagship properties in a collateral package of about HK$119bn (US$15bn) to win over lenders as it seeks financing to avert a liquidity crunch.
The Hong Kong-listed developer is racing against time to put in place a new three-year loan to refinance HK$58bn in unsecured facilities maturing in 2025 and 2026, including a couple of borrowings that fall due as early as mid-March.
Relationship banks will be crucial to NWD’s latest foray into the loan market with some bankers welcoming the developer’s decision to pledge assets, which marks a change from recent times when it could obtain the best of terms without collateral.
“Most of the existing bank borrowings of NWD are unsecured. The fact that the company is willing to sweeten the new deal with collateral is a good start for negotiations,” said a senior loan banker from a regional bank which is an existing lender to the company.
NWD has proposed a list of around 20 properties, including marquee assets such as the New World Tower in the Central business district, serviced apartment K11 Artus and office building K11 Atelier – all three in Hong Kong – and the K11 Art Mall and K11 ECOAST in Shanghai and Shenzhen respectively. The Hong Kong and China properties being pledged as collateral are valued at HK$65bn and HK$54bn respectively.
The size of the borrowing represents a conservative loan-to-value ratio of 50%, leaving some headroom for lenders concerned about a potential drop in the combined value of the collateral given the depressed state of the property markets in Hong Kong and China.
Nonetheless, some lenders are concerned about NWD’s tight timeline to put the loan in place.
“There are less than two months before our loan matures and we have no clue what the company plans to do if it cannot raise a new loan by then,” said a banker from a Chinese bank in Hong Kong that is a lender to NWD.
According to LSEG LPC data, the group’s borrowings maturing this year include a HK$2.8bn term loan and a HK$1bn revolving credit facility for New World China Land, NWD's property arm in China. These facilities fall due on March 13 and are part of a HK$6.85bn financing raised in March 2020. New World China Land also has a HK$1.5bn sustainability-linked loan due in April and a HK$2bn syndicated financing maturing in July.
Bond prices tumble
NWD’s pledge of its properties is not surprising as it has limited financing options. Raising funds from a new US dollar bond would be challenging and expensive given recent developments.
Over the past week, the prices of NWD’s US dollar bonds tumbled following media reports that the company had hired legal and financial advisers to advise on a potential restructuring that would involve maturity extensions for its bonds. In a stock exchange filing on January 20, the company denied market rumours that it had started restructuring talks with creditors.
Its 8.625% February 2028 bond sold last August dived 21 points to a cash price of 44 between January 20 and January 23, while a 5.875% June 2027 note dropped 19 points to 47, and a 4.124% July 2029 bond declined 15 points to 40, according to LSEG data. Its perpetual bonds with call dates from 2024 to 2026 were trading at cash prices of between 17 and 33 on January 23.
Its 6.15% perpetual bond with US$345m outstanding is callable in June and will reset to Treasuries plus 320.1bp plus an additional 300bp step-up if not called, which would raise the coupon to more than 10%.
According to a note from Lucror Analytics on January 22, the new loan “would alleviate the company’s debt repayment pressure for at least a year. This is as NWD does not have any maturing bonds until March 2026. That said, the company would have pledged the majority of its investment properties, leaving little assets left over for unsecured noteholders.”
Some were also concerned that NWD’s plan to refinance unsecured loans with the secured borrowing will lead to bondholders becoming subordinated to the bank lenders.
“If they do pledge assets for the bank loans, there will be little left for the unsecured bondholders. Once they complete the financing, the prices of the bonds will reflect the subordination,” said a bond analyst.
Challenges galore
Lenders considering taking or renewing exposure to NWD through the new loan will also have to take into account other challenges facing the company. It has come under scrutiny in recent months over its poor financial performance, high leverage and recurring management changes. Adrian Cheng, the son of company founder Henry Cheng, stepped down as CEO in September and was replaced by Eric Ma, who held the role for just two months.
The developer reported a net loss of HK$19.7bn for the year ended in June, its first annual loss in 20 years.
NWD has sought to bring down debt through the sale of non-core assets, which it has had to dispose of at a loss in a depressed market. According to media reports, it is in discussions with a subsidiary of China Resources to sell the prestigious K11 Art Mall shopping complex in Tsim Sha Tsui, which is not part of the proposed collateral for the latest loan.
Last month, the company obtained a waiver from banks for covenant testing relating to its gearing ratio for borrowings of at least HK$15bn. The waiver is for the December 31 testing date, but it has not yet obtained a waiver for the testing date at the end of June 2025.
NWD is also awaiting consent from lenders to raise the maximum consolidated net borrowings to consolidated tangible net worth (excluding non-controlling interests) threshold from 0.8x to 1x.