New World Development Faces Major Loss

By Clare Jim

HONG KONG (Reuters) – Shares in major Hong Kong property developer New World Development plunged 13% after estimating a net loss of up to HK$20 billion ($2.6 billion) for the financial year ending in June.

The shares closed at HK$6.83 on Monday, marking another 21-year low.

In a Friday filing, the company stated that it expected core operating profit from continuing operations to fall as much as 23% due to a revenue shortage, along with fair value and impairment losses of approximately HK$9.5 billion.

“Together with the continuous interest rate hikes experienced during the year, along with the depreciation of the renminbi, the group expects to record a net loss,” it affirmed.

New World noted that the provisions are one-off non-cash and unrealized items, meaning they do not affect the group’s cash flow.

The company has one of the highest debt-to-equity ratios among Hong Kong’s property developers, and its plans to reduce debt have been closely monitored over the past year.

While Hong Kong hasn’t seen the major debt defaults witnessed in mainland China, investor concerns about weakening liquidity in the sector persist due to sluggish residential and commercial property markets.

New World’s annual loss estimate comes after a first-half net loss of HK$7.4 billion.

JPMorgan analysts commented that New World’s loss is “not as drastic as the headline suggests,” indicating that the pro-forma core net loss might only be HK$2 billion-3 billion if non-cash items like impairment losses are excluded.

“For New World Development, the balance sheet and refinancing ability are more critical than earnings,” JPMorgan remarked, adding that the developer secured HK$16 billion in loan arrangements in July and August.

However, Goldman Sachs warned that the anticipated loss could increase New World’s net gearing by 1.5 percentage points from December to 78.4%, despite efforts to dispose of assets and repurchase perpetual bonds. The investment bank also assigned a “sell” rating to the developer, noting a risk of no dividend for the second half of the year.

New World is set to report earnings later this month, with its stock having slid approximately 80% since peaking in mid-2021, just before the onset of the debt crisis in China’s property sector. Its current market capitalization stands at around $2.2 billion.

($1 = 7.7971 Hong Kong dollars)