Hong Kong's New World Development awaits shareholder nod to sell unit

CTF Services

02/11/2023 02:18

By Clare Jim
       HONG KONG, Nov 2 (Reuters) - Shareholders of Hong Kong's
New World Development (NWD)  0017.HK  will decide on Thursday
whether to keep the company's "cash-cow" construction subsidiary
for long-term profits, or pocket an immediate special dividend
by selling it.
    The property developer, which has one of the highest debt
ratios among peers after a years-long expansion spree, would
receive as much as $2.8 billion from the sale of NWS Holdings
 0659.HK  to its major shareholder, in a buyout deal to help it
cut debt.
    The city's top developers enjoyed decades of lucrative
returns in one of the world's most expensive property markets,
but falling prices as well as rising interest rates are putting
pressure on the sector.
    Chow Tai Fook Enterprises (CTFE), which holds about 45.2% of
NWD shares, offered to buy roughly 97% of NWS stock for up to
$4.5 billion, the parties said in June.    
    NWD will hold an extraordinary general meeting at 11:30 a.m.
(0330 GMT) to vote on the deal. Approval is required from more
than half the independent shareholders, which excludes CTFE and
NWD. 
    To incentivise shareholders, NWD said it would pay a special
dividend of HK$4 billion ($511 million), or HK$1.59 per share,
upon completion of the deal. 
    "The deal is good for NWD's shareholders because, first, the
company's debt ratio will drop, and second, they will get a high
special dividend," said Alvin Cheung, associate director of
Prudential Brokerage Ltd in Hong Kong, who does not hold NWD
shares.
    Analysts said the $2.8 billion, which is equivalent to 15
years of dividend income from NWS, would give NWD an immediate
liquidity boost as its bottomline suffers from expensive
interest costs and weaker property revenues.
    However, they cautioned about the impact on NWD's future
profits. In the financial year of 2023, NWD posted a net profit
of HK$900.9 million, 28% less than a year ago. Without NWS's
contribution, it would have posted a net loss of HK$510.1
million. 
    "NWD's balance sheet will be strengthened... yet it is
inevitable we see some negative impact on future earnings and
dividends," said CLSA analyst Alvin Wong in a report, who
slashed NWD's target price to HK$10.96 from HK$29.90 after the
firm cut its dividend by 63% to preserve capital.
    Company CEO Adrian Cheng told an earnings conference in late
September the firm would use part of the proceeds from the NWS
deal to repurchase bonds, including high-coupon perpetual bonds,
and repay loans, a move analysts said could reduce interest
expenses and book gains from buying back debts at discounts. 
    Shares of NWD edged up 0.3% ahead of the voting on Monday
morning, while NWS eased 0.4%. The Hang Seng Property Index
 .HSNP  rose 1.6%.   
($1 = 7.8227 Hong Kong dollars)

 (Reporting by Clare Jim; Editing by Lincoln Feast)
 ((clare.jim@thomsonreuters.com;))