By Clare Jim
HONG KONG (Reuters) -New World Development's shares and bonds rallied on Monday after the major Hong Kong developer said it would increase cash flow and cut debt, but analysts said a more concrete deleveraging plan is needed.
Its shares closed up 11.2% to HK$5.36, the highest since December 24. New World's market value has shrunk to about $1.7 billion from $14 billion in mid-2019.
After reporting an interim net loss of HK$6.63 billion ($852.63 million) on Friday, the company said it plans active property sales and diminishing capital expenditure, and reiterated it was not discussing a holistic debt restructuring plan.
With net gearing rising above 88%, New World has some of the highest debt ratios in the sector, and the financial markets are worried any deepening of its debt problems could trigger a crisis reminiscent of the one in mainland China that started in 2021 and led to scores of company defaults.
"The interim loss was better than expected," said Alvin Cheung, associate director of Prudential Brokerage, referring the profit warning by the developer a week ago of a net loss of up to HK$6.8 billion.
"But the share price in the long run will depend on how the firm will cut debt."
Despite the firm's previous asset disposal and refinancing efforts, New World's net gearing still rose by up to four percentage points in the six months that ended in December.
J.P. Morgan said in a research report that the value of assets pledged for bank loans has risen by HK$8.5 billion to HK$97 billion, accounting for 36% of its total property book value, but it could still raise HK$93 million in loans by pledging all unsecured assets.
The brokerage also noted the company did not assure the market it would rule out a rights issuance to raise funds as it did in previous earnings conferences.
New World's perpetual bonds also firmed on Monday, though still trading deep in distressed levels, with most of them bid at 31 cents to 47 cents on the dollar, according to data by Duration Finance.
Its 6.15% perpetual bonds, which will have their coupon reset to around 10.5% unless the firm redeems the securities by June 16, were bid at 69 cents, up from 56.5 cents on Friday.
The company did not give an update on the redemption plan at the earnings conferences, but it told analysts that a decision could be made before June without a step-up of interest.
To accelerate sales, New World will launch two projects in mainland China in coming months.
It announced on Monday it plans to launch an office building, valued at 1 billion yuan ($137.37 million), in its flagship project in China's eastern city of Hangzhou this year.
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($1 = 7.7772 Hong Kong dollars)
(Reporting by Clare Jim and Donny Kwok; Editing by Kim Coghill, Gerry Doyle and Ros Russell)
