Hong Kong’s New World backstop looks shrewd

HSBC Holdings

05/10/2026 13:00

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Ka Sing Chan
HONG KONG, Oct 5 (Reuters Breakingviews) - For the first time ever, the Hong Kong government could become a major shareholder in one of the city's leading property developers. The Airport Authority has an option to buy a near-30% stake in the Cheng family's $2 billion New World Development 0017.HK, as part of an early termination agreement over a mega entertainment, retail and commercial project. That prospect could reassure creditors including HSBC HSBA.L ahead of the developer's looming debt restructuring. But the government is stepping into uncharted territory.
The deal, unveiled on Wednesday along with annual results, gives the embattled New World a huge helping hand. The company will pay HK$2.3 billion, roughly $300 million, in cash to the Airport Authority so that the developer can walk away from a 50-year agreement to build and operate 11 SKIES, an ambitious complex next to the city's airport. That, along with impairment losses and other provisions, pushed New World's bottom line HK$28.1 billion into the red for the year to the end of June.
The upside is that the company, which owns the luxury Rosewood hotel and a raft of malls and office buildings in Hong Kong, is now freed from paying out yearly lease obligations of HK$1.8 billion - up to 30% of its estimated annual revenue, per analysts at Citi - for the next four decades. 
The more consequential part of the agreement, arguably, is the Airport Authority's three-year call option to acquire 750 million New World shares for HK$2.3 billion - essentially refunding the termination fee for a 30% stake. The government-owned commercial entity is getting an implied 50% discount to the stock's undisturbed price; the Cheng family, meanwhile, has already stated it will remain New World's single largest and controlling shareholder.
Having the government appear to be a backstop may help accelerate the real-estate giant's debt cleanup. The company has some $8.2 billion in loans and bonds coming due over the next two years that are all but certain to require restructuring with creditors, on top of last year's $11 billion refinancing with banks including HSBC and Bank of China 601988.SS. Notably, on the same day as the 11 SKIES deal was announced, New World also said that its loan facility with Deutsche Bank DBKGn.DE increased to HK$4.9 billion, from the HK$3.95 billion committed ​in June.
     Even so, the Airport Authority's option leaves a lot of uncertainty. Government support is at best implicit and it's not clear under what conditions officials will choose to take a stake and what role they will play in New World. Strategically, the developer is investing in the Northern Metropolis, a flagship project in Hong Kong's Five-Year Plan meant to expand housing supply and create a new economic engine along the Shenzhen border. The government has opted to be a stakeholder in New World's revival rather than squeezing it for maximum compensation. Whether that proves a bargain depends on its coming debt overhaul.
     
CONTEXT NEWS
New World Development said on September 30 it will terminate its contractual agreements for 11 SKIES, a mega airport mall, with Hong Kong's Airport Authority by paying an early termination fee of HK$2.3 billion ($295 million), and provide works and services worth up to HK$1.1 billion for free.
As part of the deal, the Airport Authority also has an option to acquire 750 million shares in New World, representing roughly 30% of the total, for HK$2.3 billion, within three years. 
As a result of this agreement, New World recorded a net loss of HK$18.3 billion related to the 11 SKIES project in the year ending June, which included HK$14.7 billion in impairment losses as well as the early termination costs and provisions.
     
     

(Editing by Robyn Mak; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))