(Bloomberg) — Latest World Development Co.’s shares fell as much as 14% Monday morning, as Hong Kong’s property downturn weighs on the firm owned by the billionaire Cheng family.
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The corporate said late on Friday it expects to post a lack of as much as HK$20 billion ($2.6 billion) for the financial yr resulted in June — its first annual loss in twenty years.
Latest World has been grappling with higher debt levels than its peers and a plunging share price — adding pressure on 44-year-old Chief Executive Officer Adrian Cheng, the third generation to run the business, to show things around.
The developer cited asset impairment, losses on investments and better rates of interest for the decline. A revaluation of the group’s investment and development properties including a goodwill assessment will result in a non-cash lack of HK$8.5 billion to HK$9.5 billion, the corporate said. Meanwhile, core operating profit is predicted to drop as much as 23%.
Latest World’s 5.25% perpetual dollar bond fell 2.5 cents to 84.2 cents on the dollar Monday morning, set for the most important day by day decline since Aug. 5.
The sizable asset writedowns “could raise its leverage ratio and hurt the developer’s deleveraging plan,” said Patrick Wong, an actual estate analyst at Bloomberg Intelligence. “This might also raise investors’ concerns about potential risk of further valuation decline of its investment properties particularly Hong Kong office buildings.”
The corporate said in an email that the writedown was a proactive move to position the corporate “for the upcoming rate of interest cut cycle where the general property market is predicted to rebound.”
The developer has been under scrutiny in recent times over its high level of borrowings. Net debt to equity was 82.7% as of the tip of last yr, compared with 41.4% at rival Henderson Land Development Co. and 21.2% at Sun Hung Kai Properties Ltd., in response to BI.
Latest World’s writedown reflects a broader problem amongst developers. Hong Kong’s residential prices have plummeted to an eight-year low. Office and retail sectors remain weak, reducing rental income and hence the worth of developers’ investment properties.
The town’s most prestigious office towers have seen value decline significantly previously few years. CK Asset Holdings Ltd.’s landmark Cheung Kong Center, as an illustration, lost one-third of its rental value over the 4 years ending in 2023.
The lackluster residential market also limits Latest World’s potential income from selling apartments. It’s putting pressure on developers to discount their projects in an effort to lure buyers. Latest World priced a latest project within the middle-class neighborhood of Kai Tak In July at the most cost effective level for the district since 2016.
Despite the headwinds, Cheng has been ramping up efforts to enhance the firm’s financial situation. The corporate recently accomplished greater than HK$16 billion in loan arrangements and debt repayments in July and August, including early refinancing of some loans due in 2025. The corporate said in the e-mail that it has accomplished greater than HK$50 billion of debt arrangements and repayments this yr.
Latest World can be offloading lower-tier assets to lift money, and said in February it was planning to dispose HK$8 billion of non-core assets for the fiscal yr resulted in June 2024.
Latest World’s profit warning coincided with executive appointments on the identical night on the Chengs’ private investment vehicle, putting the family’s succession plan back into the highlight. The clan announced that certainly one of Adrian’s brothers had been appointed as co-CEO at Chow Tai Fook Enterprises Ltd., taking charge of the North Asia region for the family’s deep-pocketed investment firm. Which means 4 of the siblings now each effectively controls a key a part of the family business.
–With assistance from Shirley Zhao, Lorretta Chen and Shikhar Balwani.
(Updates with bond prices within the fifth paragraph)
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