Hong Kong property developer New World Development recently secured two onshore yuan loans totaling 1.4 billion yuan to reduce its financing costs. The loans consist of a 1 billion yuan loan with a 12-year term and a 400 million yuan loan with a 15-year term at interest rates of 3.1% and 3.15%, respectively.
The company, known for having one of the highest debt ratios in Hong Kong’s property sector, has focused on deleveraging, which has attracted attention in the past year. Although some of its perpetual and longer-dated bonds are still trading at unfavorable levels, there has been a rebound from last year’s lows.
The loans are guaranteed by New World’s K11 projects in mainland China. The move comes as Hong Kong banks have reduced their exposure to the commercial property sector, leading to higher lending rates compared to mainland China following a series of rate hikes.
The interest rates on these new yuan loans are significantly lower than the average interest rate of nearly 6% for the company’s offshore loans. New World has increased its share of yuan loans to reduce overall funding costs, having raised 2.6 billion yuan in onshore loans in the first six months of the year.
In July, New World entered into loan agreements and debt repayments worth HK$10 billion, up from HK$4.5 billion in the first half of the year. Earlier, the company reported a 17% increase in financing costs from continuing operations for the six months ending December 2023, totaling HKD 2.5 billion, due to rising bond yields.
Other Hong Kong developers are also turning to yuan-denominated fundraising methods, such as asset-backed securities and panda bonds in mainland China, as well as dim sum bonds in Hong Kong. This development responds to the dual impact of the depreciation of the renminbi and the increase in dollar interest rates.
The UBS analyst noted that a “natural hedging” strategy makes sense for developers with significant assets in mainland China. He predicts that the trend of increasing yuan-raising activities will continue in the long term, given the expected pressure on the yuan.
Reuters contributed to this article.
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