(Feb 27): New World Development Co posted a loss in the first half (1H) as Hong Kong’s property downturn continued to weigh on the distressed developer.
The company lost HK$3.73 billion in the six months ended Dec 31, according to a filing to the Hong Kong stock exchange on Friday. That narrowed from a HK$6.6 billion loss a year earlier. New World’s business year ends in June.
The loss was mainly driven by revaluations of investment properties and impairment of development projects. It reflects the ongoing struggles for New World, one of Hong Kong’s Big Four developers, which has faced problems in the past couple of years from mounting debts to struggling commercial properties.
Net debt increased by HK$2.6 billion from six months earlier to about HK$122.7 billion as of December, while the net gearing ratio rose to 59.7% from 58.1%. On the plus side, the company’s financing costs eased, with the average interest rate falling to 3.9% from 4.7% a year earlier.
“We will continue on the path of debt reduction,” chief executive officer Echo Huang said at a news briefing. The firm will accelerate property sales to improve cash flow, she added.
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Property development revenue fell 53% from a year earlier to HK$3.9 billion.
New World’s dollar bonds dropped across the curve on Friday afternoon, according to traders. Its 10.131% perpetual bond fell 1.16 cents to 85 cents on the dollar, on pace for its biggest daily decline since Feb 2.
The shares closed 3.6% higher before the results were released, taking this year’s gain to 49%.
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The main focus for the firm is to improve cash flow, and there are no plans for share placements or rights issues at the moment, said Huang.
After securing a record US$11 billion refinancing deal last year, New World is still seeking to raise money by selling assets. The company led by the billionaire Cheng family is in talks with Blackstone Inc for a deal that would make the US asset manager its largest shareholder, people familiar with the matter said in January.
Weakness in the commercial real estate market in Hong Kong and mainland China is hurting rental income and suppressing values for potential asset disposals. New World is struggling to fill its 11 Skies mall at the city’s airport, with key tenants including a jewellery brand owned by the Cheng family terminating leases.
Still, a rebounding residential market in Hong Kong is set to alleviate some pressure for New World. JPMorgan Chase & Co expects home prices to rise as much as 15% this year due to a resilient stock market and population inflows.
Bigger rival Sun Hung Kai Properties Ltd posted a 17% increase in profit in 1H, as property sales jumped.
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