New World Development Co. will issue up to $1.9 billion of new debt in an exchange offer for some of its outstanding notes that includes as much as a 50% haircut for perpetual bond holders.
The company plans to swap existing debt for up to $1.6 billion in new perpetual securities and $300 million in fresh notes due in 2031, according to an exchange filing on Monday.
Under the offer, some perpetual bond holders would receive half of the principal of their existing notes, while holders of other bonds would see a smaller discount of 9%-28.5% — if they agree to the plan by the early tender deadline of Nov. 17. New World’s five perpetual bonds are currently trading between 40 cents to 55 cents on the dollar and its six senior notes are at 68 cents to 88 cents, according to Bloomberg-compiled data.
The exchange offer terms are decent, said Zerlina Zeng, head of Asian strategy at Creditsights Singapore. “However, the company’s decision to forgo accrued interest on the dollar perpetuals and the absence of equity funding are disappointing,” she added.
Controlled by the billionaire Cheng family, New World continues to face financial challenges, even after completing an $11 billion loan refinancing deal. Earlier this year, the company decided to defer interest payments on four perpetual notes, postponing $77.2 million of debt obligations due in June. The deferral also sparked a jump in one of its perpetual bond’s interest rate to more than 10%.
New World’s new perpetual note would yield 9%, while a fresh senior secured dollar bond would carry a coupon of 7%, according to the filing. That bond would mature in 2031, giving New World more breathing room as two of the existing notes involved in the debt swap are due in 2027.
“A haircut on the perps had already seemed inevitable so the higher coupon could be welcomed,” Bloomberg Intelligence analysts Daniel Fan and Hui Yen Tay wrote in a note.
The company has a total of $7.9 billion of outstanding bonds, of which about 57%, or $4.5 billion worth, are perpetual notes, according to Bloomberg-compiled data.
Debt adviser PJT Partners Inc. warned bondholders in June that a potential liability management exercise would involve discounted exchanges, which would be unfavorable to bondholders because valuable offshore assets would have been taken by banks.
“With these exchanges, New World might be able to avoid bigger restructuring down the road,” Fan and Hui wrote.
New World secured a HK$3.95 billion ($508 million) loan in September backed by its prized Victoria Dockside complex in Hong Kong’s Tsim Sha Tsui district. The amount of the facility was about 75% less than the upper end of the range it had earlier sought.
Some of its existing lenders had previously expressed little interest in further increasing their exposure to the developer, which had missed a self-imposed target to complete the borrowing.
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