Receive first-hand news on the latest bond issues, credit updates and special events when you join us on our Telegram channel at https://t.me/bondsupermart!
- On 2 August, New World Development successfully issued USD 400 million bonds with an interest rate of 8.625% and a tenor of 3.5 years ("February 2028 Bond"). Meanwhile, the Group proposed a tender offer to repurchase two bonds, “NWDEVL 4.750% 23Jan2027 Corp (USD)" ("January 2027 Bond") and "NWDEVL 6.150% Perpetual Corp (USD)" (“6.125% Perpetual Bond”), at the prices of $96 and $100 respectively. The total acceptance amount for two bonds does not exceed USD 400 million.
- When considering both the USD bond issuance and the tender offer, this strategy, issuing the new bond and early repay the old bond, appears puzzling. New World Development is relinquishing the lower interest rate debt (January 2027 Bond coupon rate of only 4.75%) in exchange for the higher interest rate at 8.625% and a saving of only $4 in principal. From a financial perspective, as shown in Table 1, assuming the group repurchases USD 200 million principal of January 2027 Bond (approximately 50% of the USD new issuance proceeds), the Group would incur an additional expense of around $11.2 million over the 2.5-year period (from now to the maturity of January 2027 Bond), which is not be a prudent choice.
Table 1: Assume the Group Repurchases $200 million Principal Amount in January 2027 Bond, the Group’s Extra Payment Amount
Coupon Rate | Per $100 Principal | Assume the Group repurchases $200 million principal amount in January 2027 Bond | |
January 2027 Bond Coupon | 4.75% | $11.8 (2.5 year Coupon) | Around USD 23.5 million |
February 2028 Bond Coupon | 8.625% | $21.4 (2.5 year Coupon) | Around USD 42.7 million |
The Cost Save From Early Principal Payment | / | $4 (=$100 - $96) | Around USD 8 million |
Extra Payment Amount | / | $5.6 | Around USD 11.2 million |
Source: Company’s Announcements, iFAST compilations | |||
- Concerning 6.125% Perpetual Bond, it is reasonable that New World Development repurchases the bond at par value. This USD 450 million bond has the coupon reset clause in June 2025. The coupon rate is estimated to be as high as over 10% at that moment. Hence, the Group has a strong incentive to redeem this bond.
- The primary importance of this new bond issuance is to showcase New World Development's stronger refinancing ability. The Group demonstrated its ability to raise funds in the public market. This move exceeds market expectation and is poised to turnaround the confidence crisis of the Group. This benefits existing bondholders, as the Group’s credit risk is reduced. The bonds (especially the perpetual bonds) experience a rebound post the news.
- It is worth noting that New World recently announced the successful refinancing of over HKD 10 billion in loans and an increased proportion of RMB loans, aiding in lowering the overall average cost of borrowings. The latest RMB loan financing includes a RMB 1 billion commercial property loans (12 years, interest rate of 3.1%) and a RMB 400 million commercial property loans (15 years, interest rate of 3.15%).
- Taking into account the financing since the beginning of the year, New World Development successfully refinanced loans amounting to as much as HKD 45 billion, reflecting its robust financing ability. This validates our previous views (the related articles can be shown below), such as “the Group can pledge more assets to secure more new loans”, “it still has a certain degree of financing ability” and “accelerating property sales, asset disposals and borrowing more bank loans by using the credit lines or by pledging more assets”. These financing resolved the short-term liquidity pressure faced by the Group. (As of the end 2023, the short-term debt excluding revolving loans was HKD 50.7 billion)
- In conclusion, New World Development possesses a high-quality asset portfolio available for sale or financing purposes and a stronger financing ability. This new bond issuance demonstrates the Group's ability to issue a sizeable bond in the public market (USD 400 million is a considerable amount in the current USD real estate bond market). Consequently, the Group's credit risk becomes more manageable, and investors could New World Development bonds (including our pick on the two perpetual bonds with no coupon resets and higher current yield), offering net yield to maturity / net current yield ranging from 6.9% to 10.4% (see Table 2).
Table 2: Selected New World Development’s Bonds and Perpetual Bonds
Bond Name | Tenor (Years) | Ask Price (Investors Buy) | YTM |
| NWDEVL 4.750% 23Jan2027 Corp (USD) | 2.5 | 94.6 | 7.1% |
| NWDEVL 5.875% 16JUN2027 CORP (USD) | 2.9 | 95.1 | 7.8% |
| NWDEVL 4.500% 19MAY2030 CORP (USD) | 5.8 | 80.5 | 8.9% |
| NWDEVL 3.750% 14JAN2031 CORP (USD) | 6.5 | 74.7 | 9.1% |
| NWDEVL 4.800% Perpetual Corp (USD) | 永续 | 48.5 | 9.9% (Net Current Yield) |
| NWDEVL 6.250% Perpetual Corp (USD) | 永续 | 59.3 | 10.5% (Net Current Yield) |
Source: Bondsupermart Data as of 2 August 2024 | |||
- For the two bonds in the tender offer, investors could consider holding the bonds, as both of them have the yield to maturity / yield to next call of over 6.125%. Under the current environment of credit spread tightening, it is hard to find out alternatives which could offer similar yield.
Related Articles:
After Scrapping All Tightening Measures, will New World Development be the Beneficiary?
For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
