Bond Update : NWD launches a new exchange offer, extending bonds due in 2027–2028

On 6 October, New World Development (0017.HK, “New World”) announced a new round of exchange offers for its US dollar bonds. The offers target three bonds maturing in January 2027, June 2027 and February 2028, with a combined outstanding principal of approximately US$991 million. The new notes will be issued by CS Management Services (NB) Limited, a newly established special purpose vehicle, and are 7.375% senior secured notes due 2032 linked to Victoria Dockside in Tsim Sha Tsui. The issuance of new notes is expected to be capped at US$600 million, of which the portion exchanged from the 2028 bonds will not exceed US$200 million, meaning participants may not have all their bonds accepted.

Bondholders who participate on or before 4:00 p.m. London time (11:00 p.m. Hong Kong time) on 14 October will receive the early exchange consideration; those who participate before the same time on 20 October will receive only the base exchange consideration.

(The following is for reference only. All details are subject to the original announcement and the Exchange Offer Memorandum.)

Summary of the Exchange Offers

The offers only cover three fixed-maturity bonds (see Table 1).

Table 1: Summary of the Exchange Offers (per US$100 principal amount)

New Notes Structure: Principal and Interest Paid from Victoria Dockside’s Cash Flow

The new notes are issued by a special purpose vehicle, with recourse concentrated on Victoria Dockside (see Table 2). Similar to the arrangement under last year’s exchange offer, the issuer of the new notes will extend a loan to Cosmostar Holding Ltd, which holds Victoria Dockside; the loan is guaranteed by New World and Victoria Dockside. Cosmostar repays the loan with Victoria Dockside’s rental and operating income, which the issuer in turn uses to pay principal and interest on the new notes.

Table 2: New Notes Details

Issuance Cap: Participants May Not Be Fully Accepted

The offers are subject to two caps. The issuance cap for the new notes is US$600 million, while the 2028 bonds are subject to a separate sub-cap, under which the new notes exchanged from them will not exceed US$200 million (see Table 4).

Table 4: Acceptance Priority and Expected Acceptance Ratio

In terms of allocation order, the three bonds will be accepted in sequence according to their maturity: the January 2027 bonds have first priority, the June 2027 bonds have second priority, and the 2028 bonds come last. If bondholders participate in full, holders of the two bonds maturing in 2027 are expected to be accepted in full, while only a small portion of the 2028 bonds may be accepted.

Brief Commentary

This exchange offer differs markedly from last year’s plan. The total early consideration is approximately US$100.25, with no principal haircut, making it in effect an extension.

Many investors are most concerned about whether their bonds will be repaid on time if they do not participate. In terms of cash levels, New World faces limited pressure in repaying the two 2027 bonds: together they amount to approximately HK$4.8 billion, while the group’s cash and bank deposits stand at HK$16.96 billion. The offer also has no minimum participation threshold, suggesting that the company is prepared to repay the non-participating portion in cash. As for the 2028 bonds, there are still about 1.3 years to maturity, and the main bank loans do not mature until June 2028 at the earliest, giving the company more ample time to make arrangements. However, as at the end of June, bank and other borrowings due within 12 months amounted to approximately HK$19.7 billion, in addition to the approximately HK$2.3 billion 11 SKIES termination fee, so the progress of refinancing and asset disposals still warrants attention

Currently, the yields to maturity of New World’s 2027 and 2028 bonds exceed 8%, while the coupon on the new notes is only 7.375%. For New World, extending maturities through secured notes significantly lowers its financing costs. For participants, this means sacrificing some yield and the opportunity to recover principal in the near term, in exchange for secured protection backed by Victoria Dockside.

Overall, the plan involves no principal haircut and helps the group get through its maturity peak over the next year, which is a positive signal. However, it does not fundamentally resolve the group’s high debt problem, and the debt borne by Victoria Dockside continues to increase. Whether to participate ultimately depends on whether investors place more weight on recovering principal in the short term or on long-term secured protection; in any case, the progress of New World’s asset disposals and bank refinancing remains worth monitoring.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) the analyst who produced this report holds a NIL position in the abovementioned securities.

RISK DISCLOSURE STATEMENTS FOR BONDS