NWD wins support from top lenders

New World Development has obtained commitments from Bank of China and HSBC for two loans totalling HK$87.4bn (US$11.2bn) to replace existing bank debts carrying a covenant waiver expiring in June, according to people with knowledge of the matter.
The two banks are among those with the largest exposure to the Hong Kong developer, according to sources.
A number of lenders with smaller exposures have also committed to the deals, while others are still processing internal approvals, sources said.
NWD is under pressure to complete the refinancing by the end of June, because its lenders earlier agreed to amend a financial covenant that exists in most of its bank borrowings – which would have been breached without the amendment – but the consent is only valid until the end of June.
Most of NWD’s bank borrowings and loans that it guarantees carry a covenant that stipulates a maximum net debt to tangible net worth of 0.8x, which lenders have now agreed to raise to 1x until end-June.
The group has also extended two facilities totalling HK$3.8bn for New World China Land to the end of June from the original maturity in mid-March.
NWD also has a US$345m 6.15% perpetual bond callable on June 16. As it did not give a call notice by May 16, the coupon is due to reset to the initial spread of 320.1bp over Treasuries plus a 300bp step-up, which would take it to more than 10%, although NWD still has an option to call the bonds at any time. The notes were trading at a cash price of 61 to 62 in the week of May 19.
Analysts at Lucror Analytics wrote on May 21: "We believe that the company's failure to call the 6.15% perp on the first call date may be related to the loan refinancing overhang. Moreover, the recent plunge in Hibor could incentivise NWD to redeem its higher coupon debt."
Another analyst had a similar opinion, saying that the decision not to call is not a concern. "It's not financially prudent to call the perp," she said.
NWD has some options. Some have speculated that it will still call the perpetual bond, but the analyst said it would be more sensible to first look to its bullet maturities. The company has an outstanding US$458.4m 4.75% January 2027 bond issue, which has been trading around a cash price of 80 in recent months.
"But this company has not been doing sensible things," said the analyst. "I don't have a strong conviction."
NWD has not helped matters by generally remaining silent on its intentions, even in the face of market rumours, the analyst said.
The developer has been embroiled in a series of rumours and speculation about its financial stability. It has also cycled through CEOs in quick succession and has faced social media claims and concerns about its strategy and credit quality.
Loan backing
In February, NWD invited existing lenders to join a HK$63.4bn loan, previously reported to be HK$59.9bn, to replace the existing debts that mature by 2026, and a HK$24bn borrowing to refinance other facilities coming due in 2027 and beyond.
The developer is offering security packages that contain about 40 of the group's properties, valued at a combined HK$150.5bn according to a term-sheet sent out in February, to attract banks to join the two new three-year borrowings, as most of its existing loans are unsecured.
Meanwhile, Deutsche Bank is also arranging a HK$15.6bn three-year new money loan for NWD. The bank has underwritten about HK$7.8bn of the facility, according to sources with knowledge of the deal.
The new money deal, launched in late March, offers the group's landmark asset Victoria Dockside, a commercial development in Hong Kong's Tsim Sha Tsui district, as security, and carries a letter of comfort from NWD’s shareholder Chow Tai Fook Enterprises.
Hong Kong billionaire Henry Cheng’s family controls Chow Tai Fook, which owns a 45.24% stake in NWD.
The Deutsche Bank-led term loan will be used to boost the borrower’s liquidity among other general corporate purposes. It offers all-in pricing of 137bp to 160bp based on an interest margin of 105bp over Hibor.
The loan-to-value ratio of the borrowing is around 20%–30% based on a valuation of about HK$60bn–$70bn of the three-million-square foot Victoria Dockside, which houses the Rosewood Hotel and luxury mall K11 Musea.
The term-sheet sent out in mid-February regarding the HK$87.4bn refinancing states that the security for the HK$63.4bn facility comprises about 27 properties, including some of the company’s flagship assets, such as New World Tower and Manning House in Hong Kong’s central business district, office building K11 Atelier on King's Road and K11 Art Mall in Tsim Sha Tsui, as well as the K11 ECOAST in Shenzhen and the K11 Art Mall in Shanghai.
This basket of properties was valued at about HK$120bn as at the end of June 2024, of which HK$88bn is unencumbered, according to the term-sheet.
The second portfolio of 13 properties that serves as security for all loans due in 2027 and beyond includes the Kai Tak Mansion Project, The Pavilia Farm and the Hong Kong Golf & Tennis Academy, as well as Rosewood Phuket, Jing Guang Centre in Beijing, Shenyang New World Centre and New World Dalian Hotel. This group of properties was valued at HK$30.5bn, of which HK$29.5bn is unencumbered.