Hong Kong property tycoons enter brave new world

Henderson Land Development Co

26/09/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own. Updates to add the graphic.)
    By Chan Ka Sing
       HONG KONG, Sept 26 (Reuters Breakingviews) - With age
comes wisdom. For Hong Kong's embattled New World Development
 0017.HK , it has taken 54 years since its founding to conclude
that maybe the conglomerate is better off run by someone outside
of its founding Cheng clan. Such a move is nearly unheard of in
the city dominated by family-run conglomerates. What happens at
New World will put peers on notice.
    Trading in the $3 billion malls-to-offices developer was
suspended on Thursday. A day earlier, Bloomberg reported that
the company may replace its CEO, the third generation scion
Adrian Cheng, with someone outside the family. Cheng will be
reassigned a non-executive role, the report added.
    It's a rare and bold move. The 44-year-old is the grandson
of the late billionaire Cheng Yu-tung, who built an empire
spanning infrastructure, transportation, retail, and insurance.
After taking over as CEO of the group's property development arm
in 2020, the younger Cheng created the K11 group, which combines
retail with art and culture. His flagship K11 Musea mall in Tsim
Sha Tsui, for instance, calls itself "Hong Kong's Silicon Valley
of Culture".
    This has made Cheng, an avid entrepreneur, a social media
icon but hasn’t helped his company's market value. Under his
leadership, the developer's gearing ratio surged to 80%, among
the highest of its peers; New World Development shares have
plummeted roughly three-quarters under his leadership, versus a
25% fall in the Hang Seng Index  .HSI  during the same period.
Last month, the company warned it expected a net loss of up to
$2.5 billion for the financial year ended June, the first annual
loss in two decades, thanks to write-downs.
    Cheng had resisted core asset sales or rights issues. With
him gone, both could be imminent. Shenzhen-based state-owned
group, China Resources, has expressed interest in buying the K11
art mall and has offered $1.2 billion, real estate outlet
Mingtiandi reported last month, citing sources.
    Fellow tycoons will take note. The city's real estate slump
is showing no signs of easing as local shoppers are opting for
cheaper malls and restaurants across the border in Shenzhen. One
of the biggest landlords in Hong Kong's Central business
district, Henderson Land Development  0012.HK , founded by Lee
Shau Kee, has been grappling with succession issues too.
    Hong Kong's property scions are entering a brave new world.
    
    CONTEXT NEWS
    Hong Kong's New World Development shares were suspended from
trading pending an announcement of inside information on Sept.
26.
    The property developer is considering replacing its CEO,
Adrian Cheng, Bloomberg reported on Sept. 25, citing people
familiar with the matter. He will be reassigned to a
non-executive role, the report added. 
    Adrian Cheng, 44, took over the top job at New World from
his father, Henry Cheng, in 2020, and expanded its business
quickly in both Hong Kong and mainland China, building many
large-scale projects including flagship K11 shopping malls and
offices with his passion for art and culture.
    The Hong Kong property developer will report results for the
financial year ended June on Sept. 26. The Hong Kong property
developer said on Aug. 30 it expects a loss as much as HK$20
billion ($2.6 billion), its first annual loss in two decades. 

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New World has underperformed under its current CEO    https://reut.rs/3XEp7v1
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 (Editing by Robyn Mak and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))