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New World Development, a major Hong Kong-based property developer, announced the deferral of coupon payments amounting to USD 77.2 million on its perpetual bonds amid a mounting liquidity crisis. This move has spurred investor concerns, causing a fall in both share prices and bond values. The developer, grappling with one of the highest debt levels in the sector, is actively pursuing a refinancing deal worth HKD 87.5 billion to stabilise its finances. The decision to delay payments is viewed as a strategic attempt to conserve cash in a challenging market environment marked by falling property prices and rising borrowing costs.
New World Development recently revealed that it has deferred coupon payments totalling USD 77.2 million on its perpetual bonds, signalling a severe liquidity squeeze. This announcement triggered a decline in the company's share price and bond valuations, reflecting the market's growing apprehension about its financial health. Advertisement
New World Development, headquartered in Hong Kong, has long been known for its substantial debt burden, with a net gearing ratio of 91% and net debt standing at HKD 165 billion as of the end of last year. The company's financial difficulties stem largely from a combination of falling property prices, diminished sales volumes, and increased borrowing costs. Despite ongoing efforts to improve cash flow and reduce leverage, these headwinds have continued to strain the company's balance sheet.
In response to these pressures, New World Development is engaged in negotiations with lenders to arrange a refinancing package valued at HKD 87.5 billion. To date, it has secured commitments exceeding HKD 35 billion, with the goal of closing the deal by the end of this month. Such refinancing efforts are crucial for the company's survival, enabling it to manage existing debts and regain operational flexibility.
Deferring coupon payments on perpetual bonds is significant as, under accounting standards, it constitutes a form of default. However, New World Development views this as a necessary measure to preserve liquidity and ensure its long-term stability amid ongoing market challenges. This strategy echoes similar moves by other distressed developers in the region who have faced tightening credit conditions and slowing property markets in recent years.
The liquidity crisis confronting New World Development highlights the broader vulnerabilities within Hong Kong's property sector, where developers continue to grapple with volatile market conditions and rising financing costs. The company's proactive approach to renegotiating its debt structure will be closely watched by investors and industry analysts, as it navigates through this precarious phase.
The ongoing refinancing talks represent a critical juncture that could determine the company's future viability. This situation serves as a reminder of the importance of robust financial management and strategic planning in the face of economic uncertainty, particularly in sectors as cyclical and capital-intensive as real estate development.
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