(Bloomberg) — New World Development Co., the distressed Hong Kong developer that’s unsettled investors by delaying some debt payments, faces a critical test Monday when interest comes due on a dollar bond.
The company, controlled by the family empire of tycoon Henry Cheng, must pay the $5.05 million on the 5.875% security, according to Bloomberg calculations. Investors are closely monitoring the deadline after the builder recently jolted creditors by using an option to defer coupon payments on four perpetual notes.
The interest due Monday, however, is on a regular bond that doesn’t carry such an option to push back payments. An event of default could be triggered if New World fails to honor the coupon within 14 days of the due date, according to an offering document seen by Bloomberg News. Generally in credit markets, it can sometimes take two to three days for dollar bondholders to receive interest payments once they’re initiated.
New World, which is grappling with HK$210.9 billion ($26.9 billion) of liabilities, has the highest debt burden of any major Hong Kong developer. Any signal of a possible default by the locally renowned builder could intensify concerns about sluggish real estate market conditions and possible spillover effects.
New World didn’t immediately respond to a request for comment. A spokesperson said late last month that the company continues to manage its overall financial indebtedness while taking into account the current market volatility and continues to comply with its existing financial obligations.
News over the weekend underscored New World’s ability to bring in money, even if it has to resort to discounting homes to do so. The builder and its partners sold 138 apartments in a few hours at a new project in Hong Kong after offering reduced prices, a necessary step to prevent liquidity from worsening further.
The builder has prioritized talks with banks for months to secure a HK$87.5 billion loan refinancing deal to ease its liquidity stress. Separately, it is also using one of its most valuable assets in Hong Kong — a harbor complex that houses luxury mall K11 Musea — to seek a new loan of as much as HK$15.6 billion.
New World’s bond in question has $172 million in outstanding principal and is currently indicated at about 65 cents on the dollar, according to Bloomberg-compiled data.
Investors became increasingly worried over New World’s liquidity conditions last month after it opted not to redeem a perpetual security. Meanwhile, bondholders are growing frustrated with the level of its financial disclosure as it prioritizes communication with banks during the loan talks.
The firm has received written commitments for 87% of its refinancing target as it races to complete the deal with more than 50 banks by the end of June, Bloomberg reported earlier.
Debt adviser PJT Partners Inc. has warned bondholders that a liability management exercise for the securities would be the only way for New World to deal with debt maturities and preserve equity value.
–With assistance from Apple Ka Ying Li.
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