Stung by a property slump in Hong Kong and mainland China, New World has become a posterchild of the broader challenges developers face as they grapple with debt. One of the first things that many visitors to Hong Kong see is New World’s 11 Skies mall just beside the airport, a project that it’s discussed trying to sell and that prompted it to book an impairment loss of HK$2.7 billion after a valuation revision.
The debt swap is New World’s latest move aimed at easing liquidity stress stemming from the yearslong real estate downturn. The company completed a record US$11 billion loan deal in June, and secured a HK$3.95 billion loan backed by its crown jewel asset Victoria Dockside in September, but challenges remain.
“New World’s debt swap plan reflects the underlying weakness across Hong Kong’s commercial real estate sector rather than being an isolated case,” said Henry Chan, commercial real estate economist at Capital Economics. The company’s situation underscores lingering risks across the sector as property valuations remain under sustained pressure, he added.
New World posted a wider net loss for the year ended June, with the company’s chief executive officer saying it would make an effort to cut debt, including by accelerating property sales and expediting asset disposals in the new fiscal year.
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In its filing on Tuesday, the company said that the results of the swap so far leave it set for a net reduction of its outstanding perpetual securities and senior notes in aggregate principal amounts of about US$1.02 billion and US$29.9 million, respectively.
Under the swap plan, New World offered to issue US$1.6 billion of perpetual bonds in exchange for its old notes at a price of 50 cents on the dollar, meaning it could buy back as much as US$3.2 billion of outstanding notes. It also proposed a US$300 million debt swap for its conventional bonds, at a lower haircut.
The extended early deadline falls on Dec 2 at 11.59pm New York time, giving perpetual holders until then to receive US$50 more for each US$1,000 in deferred interest and principal on the existing notes.
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Prior to the exchange offer, New World had a total of US$7.9 billion of outstanding bonds, of which about 57%, or US$4.5 billion worth, were perpetual notes, according to Bloomberg-compiled data.
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