Shares in Hong Kong's New World Development plunge after loss estimate

By Clare Jim

HONG KONG (Reuters) - Shares in major Hong Kong property developer New World Development plunged 13% after it estimated a net loss of as much as HK$20 billion ($2.6 billion) for the financial year that ended in June.

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

The company said in a Friday filing it expected core operating profit from continuing operations to fall as much as 23% due to a lack of revenue, with 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 (the) renminbi, the group expects to record a (net) loss," it said.

The company 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 plan to cut debt has been closely watched over the past year.

While Hong Kong has not seen the major defaults on debt by property developers seen 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$7.4 billion.

JPMorgan analysts said in a note that New World's loss is "not as drastic as the headline suggests", and that its pro-forma core net loss may only be HK$2 billion-3 billion if non-cash items like the impairment loss are excluded.

"For New World Development, the more important consideration is not earnings, but the balance sheet and refinancing ability," JPMorgan said, adding the developer had secured HK$16 billion in loan arrangements in July and August.

But Goldman Sachs said the indicated loss could raise New World's net gearing by 1.5 percentage points from December to 78.4%, despite its efforts to dispose of assets and buy back perpetual bonds.

The investment bank, which gave the developer a "sell" rating, said it saw a risk of no dividend for the second half.

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 and Jan Harvey)