Has China’s property crunch infected Hong Kong’s huge sector, or are the problems at Star Entertainment Group adding to the woes of a major business family in the former UK colony?
Shares of New World Development, a major Hong Kong property player, slumped nearly 14% on Monday after the company estimated a net loss of as much as HK$20 billion (US$2.6 billion) for its 2023-24 financial year ending in June.
The shares fell sharply after the company revealed the potential loss in a Stock Exchange filing late Friday.
The shares dropped to HK$6.74 in early trading, marking a fresh 21-year low for the company, which is controlled by Chow Tai Fook, the holding company led by Hong Kong billionaire Cheng Yu-tun.
The news caused Hong Kong’s stock market to lose 1.5% in value, while mainland Chinese markets dropped by around half a per cent as the news of the significant loss reverberated.
Chow Tai Fook Jewellery, the central company in the Cheng empire, has seen its shares slump 48% in the past year due to its property and business links to China.
Additionally, Chow Tai Fook Enterprises, a subsidiary, has an investment of around A$1 billion in Star Entertainment Group’s Queen’s Wharf hotel, casino, and shopping development in Brisbane, which is facing massive write-downs.
New World was involved in the late 1980s in bidding for the Sydney casino licence now owned by the Star Entertainment Group.
In Friday’s filing, New World stated that it expected a drop of as much as 23% in core operating profit from continuing operations due to a lack of revenue and anticipated fair value and impairment losses of up to HK$9.5 billion.
"Together with the continuous interest rate hikes experienced during the year, as well as the depreciation of Renminbi, the group expects to record a net loss," the company said.
In a separate statement on Friday, the company clarified that the provisions were one-off, non-cash, and unrealised items, and would not affect the group's cash flow.
Hong Kong analysts note that New World has one of the highest debt-to-equity ratios among the city’s property developers, and its deleveraging plan has been closely watched by investors over the past year.
While Hong Kong has not seen major defaults on debt by property developers like those in mainland China, investors have been concerned about weakening liquidity in the sector due to sluggish residential and commercial property markets.
The problems at New World and Chow Tai Fook mean the Cheng empire may struggle to provide additional financial support for the embattled Star.
The Star was suspended from trading on the ASX yesterday after it failed to post its financial results within the reporting period.
The Star received a copy of the NSW regulator’s probe into its culture on Friday, the same day it was supposed to unveil its financial performance for the 12 months ending June 30.
Instead, the company requested and was granted a trading halt by the ASX because the contents of the report would influence its guidance outlook. The company was also in the midst of trying to secure a financial lifeline.
The halt was requested until today, Monday, September 2. When no results appeared, the ASX suspended trading. The last sale last Thursday was at 45 cents, with a market value of $1.29 billion.
“The securities of [The Star] will be suspended from quotation from the commencement of trading today, Monday, September 2, for not lodging the relevant periodic report by the due date,” the ASX said in a statement on Monday.
Media reports indicated that Star executives and advisors had been working since last week, including over the weekend, to secure assistance from governments and banks, and to find ways of accessing fresh capital after raising $1.5 billion in two issues in 2023 and wasting the lot.
