Investors nervous of potential for property sector crisis*
Loss follows net profit a year ago
*
High debt levels make it vulnerable to interest rate hikes
(Adds management comment throughout, updates financial figures in paragraph 7, 11-13, adds impact on sector in paragraph 19-20)
By Clare Jim
HONG KONG, Feb 28 (Reuters) - New World Development , one of the biggest property developers in Hong Kong, reported an interim net loss of HK$6.63 billion ($852.45 million) on Friday, following a prolonged property downturn and high interest costs.
CEO Echo Huang, who has led the company since November, said she would increase cashflow and cut debt by accelerating asset sales and lowering capital expenditure.
Financial markets are watching New World closely because any deepening of its debt problems could trigger a crisis reminiscent of the one in mainland China that started in 2021 and led to scores of company defaults.
After around three years of constrained cash flows, New World has had two new CEOs in short succession. Huang took over from Eric Ma who held the job for two months after Adrian Cheng, a member of the third-generation of the founding family, resigned in September.
The net loss for the first half ended in December, which counts only continuing operations, is mainly driven by impairment and fair-value losses.
That compares with a HK$502 million net profit a year ago and follows a record HK$11.8 billion net loss for the full 2023/2024 financial year.
Excluding non-cash items such as impairments and fair value changes, core operating profit was HK$4.4 billion, 18% lower than a year ago.
Hong Kong developers enjoyed decades of growth until the property market, a pillar of the economy, was repeatedly hit by crises, including anti-government protests in 2019, COVID-19 and a slow economic recovery.
New World's market value has shrunk to about $1.5 billion from $14 billion in mid-2019.
Higher interest rates are also hitting it harder than its peers because it has some of the highest net gearing in the sector, at 85% at end-June if perpetual bonds are included, following its rapid expansion in both Hong Kong and mainland China before the pandemic.
WAITING FOR RIGHT PRICE
Huang told an earnings conference call on Friday the company is in discussion with potential buyers of several assets, and it will only sell "when the price is right".
The developer had a total of Forum Syair HK$146.5 billion of loans and bonds as of end-December, while its cash level was HK$21.9 billion. The figures dropped by HK$5.1 billion and HK$6.1 billion, respectively, from end-June.
New World had HK$35.4 billion of perpetual bonds outstanding. The perpetual bonds, which are typically more expensive than those with a defined term, are trading at between 29 and 57 cents to the dollar, implying an imminent default or a bond restructuring.
The company did not give an update on its bond repayment plans, but reiterated it was not discussing any holistic debt restructuring plan.
In a statement, it said it had obtained waivers from banks during the reporting period to comply with certain financial covenants. It said it was in active dialogue on refinancing terms and expected the waivers to be extended.
Its 6.25% perpetual bond has a $40.6 million coupon payment due on March 7, and the $345 million, 6.15% notes will have their coupon reset to around 10.5% unless New World redeems the securities by June 16, which could add to the company's refinancing costs.
Any increase in its debt difficulties would be likely to weigh on Hong Kong's property market as a whole. Poor sales, shrinking valuations and a near shut-down of bank lending have already squeezed its smaller peers.
S&P Global Ratings has said any defaults or restructurings by a major developer in the city would halve new home sales volumes in 2025 and send home prices 5% to 7% lower.
Home prices in Hong Kong, one of the world's most unaffordable cities, have already fallen by nearly 30% from a 2021 peak. ($1 = 7.7776 Hong Kong dollars) (Reporting by Rajasik Mukherjee and Clare Jim; Editing by Anne Marie Roantree, Muralikumar Anantharaman and Barbara Lewis)