Shares in Hong Kong’s New World Development plunge after $2.6 billion loss estimate

11:11 pm Sunday, September 01st, 2024

By Clare Jim

HONG KONG (Reuters) -Shares of New World Development, a major Hong Kong property developer, plunged 14% after it estimated a net loss of as much as HK$20 billion ($2.6 billion) for the financial year ended in June.

The shares fell to HK$6.74 in early trading, marking a fresh 21-year low.

The company said in a Friday filing it expected a drop of as much as 23% in core operating profit from continuing operations due to a lack of revenue, and it would have fair value and impairment losses of as much as HK$9.5 billion.

“Together with the continuous interest rate hikes experienced during the year as well as the depreciation of Renminbi, the group expects to record a (net) loss,” it said.

The company also said the provisions were one-off non-cash and unrealised items and do not affect the group’s cash flow.

New World has one of the highest debt-to-equity ratios among Hong Kong’s property developers and its de-leveraging plan has been closely watched over the past year.

While Hong Kong has not seen major defaults on debt by property developers like in mainland China, investors worry about weakening liquidity for the sector due to sluggish residential and commercial property markets.

New World’s full-year loss estimate follows a first-half net loss of HK$5.8 billion.

JPMorgan analysts said in a note to clients that New World’s loss “is not as drastic as the headline suggests”, because its pro-forma core net loss may only be HK$2-3 billion if non-cash items like the impairment loss and losses on asset sales are excluded.

“The net loss situation is more a status quo. For New World Development, the more important consideration is not earnings, but the balance sheet and refinancing ability,” JPMorgan said, adding the developer secured HK$16 billion in loan arrangements in July and August.

New World is expected to report earnings later this month.

Its stock has slid some 80% since a peak in mid-2021 just before the debt crisis in China’s property sector began to emerge. It currently has a market cap of around $2.2 billion.

($1 = 7.7971 Hong Kong dollars)

(Reporting by Clare Jim and Donny Kwok; Editing by Edwina Gibbs)