Cutting New World ties over 11 Skies averts ‘lose-lose’ deal: Airport Authority

The Airport Authority has averted a “lose-lose situation” by terminating a nearly 50-year contract with Hong Kong developer New World Development for the 11 Skies commercial project, with most facilities set to open in 2028, according to the organisation’s directors.

The authority’s executive director for finance, Julian Lee Pui-hang, said on Friday that it could no longer work with a debt-ridden partner on the ambitious development and that the authority needed to bring it forward.

He said the authority could adopt a “technical solution” of taking New World to court for failing to deliver the project, but it would come with pitfalls.

“We could have sought a settlement in court, but it sacrifices time and we need to bring forward the development,” he said. “If we went for a technical solution, it risks a lose-lose situation.”

New World announced on Wednesday that it would return the project to the authority by surrendering the infrastructure, paying a HK$2.3 billion (US$293 million) break-up fee, spending HK$1.05 billion providing remaining works and services, and a HK$1 option to buy the company’s shares.

“The whole package represents the biggest efforts of the major shareholder [of New World],” Lee said. “We have tried to maximise what we get; the option is a bonus.”

The Cheng family’s offer of the option worth HK$1 for the authority to buy 750 million New World shares from the family came with a string of conditions that raised the question of its feasibility.

For example, the authority can only exercise the option within three years and must buy the shares in one go. When it buys the shares, it cannot breach any bank covenants and cannot exceed the controlling shareholder’s interest, not to mention it has to hold the stake, if bought, until September 2032.

The 750 million shares already represent 29.8 per cent of New World’s total issued share capital at 2.52 billion shares.

The Cheng family’s private investment vehicle, Chow Tai Fook Enterprises, had about a 45 per cent stake in New World and had indicated it intended to keep its control of the developer.

The exercise price of the option will be HK$2.25 billion, or HK$3 per share – nearly a 50 per cent discount to Friday’s closing price of HK$5.82.

“New World will have a series of movements to follow,” Lee said without elaboration.

The developer has been offloading assets and refinancing capital to cut debt since a liquidity crisis surfaced in 2023. As of June 30, its total debts stood at HK$143.3 billion and net debt was HK$126.3 billion.

The early termination ended the contract signed with New World in 2018, which was originally supposed to end in 2066.

The termination was controversial because the authority would give up its entitlement to receive 20 per cent of guaranteed rent or revenue rent whichever was higher, of the gross revenue from 11 Skies from 2027 to 2066.

The handover is due to be completed by April next year.

11 Skies was intended to complement the authority’s goal of developing Skytopia, a HK$100 billion landmark surrounding Hong Kong International Airport, featuring commerce, culture, leisure and entertainment elements.

The authority’s executive director for commercial, Cissy Chan Ching-sze, said 11 Skies would be renamed soon and given a new identity before management hunted for investors and tenants.

“It will no longer be a mall,” she said. “It will be an entertainment hub.”

Originally the HK$20 billion 11 Skies development was composed of three grade A office towers totalling 570,000 square feet, and 2.6 million square feet retail and dining space representing 70 per cent of the entire project.

In the first half of this year, the company wrote off HK$18.32 billion in net impairment losses and provisions on 11 Skies, following HK$2.7 billion in the same period last year.

Chan said some spaces in one of the office towers had been leased, while the other two were pending tenant recruitment.

“We aim to attract companies that organise exhibitions to move from Wan Chai to leverage more exhibitions to be held at AsiaWorld-Expo,” she said, adding that other potential tenants include private wealth and insurance companies.

The retail and dining spaces were repurposed as a destination for entertainment, wellness and experiences.

She cited restaurants offering jetfresh seafood, carting and pet-friendly areas and spaces dedicated to visitors’ experiences as examples.

In 2028, Chan said key components of Skytopia would be completed.

They include most parts of 11 Skies, an autonomous transport system that connects the Hong Kong checkpoint of the Hong Kong-Zhuhai-Macau Bridge with Tung Chung MTR station, a 12,000 square metres waterfront piazza, a water recreation area and the expansion of nearby facilities, AsiaWorld-Expo.

The AsiaWorld-Expo will add 100,000 square metres of exhibition space and a 20,000-seat super arena for events and concerts and more.

Part of the yacht bay berthing facilities would also be due for use in 2028, Chan said.