Indebted Hong Kong developer New World offers shares at 81% discount in US$3.2b cash call

New World Development will issue 11 new shares for every existing share at an 81.5 per cent discount, exposing shareholders who do not participate to theoretical dilution of 75.3 per cent, as the indebted Hong Kong property developer seeks to raise HK$24.9 billion (US$3.2 billion) in a recapitalisation backed by its controlling Cheng family.

The developer will offer the rights shares at HK$0.90 apiece, compared with Thursday’s closing price of HK$4.87 before trading in the stock was suspended.

The offering involves about 27.7 billion new shares, expanding New World’s existing share capital by 11 times.

The scale of the offer means shareholders would need to pay HK$9,900 for every 1,000 existing shares to maintain their proportional stake, representing a substantial cash commitment for minority investors.

At an online briefing held at 8pm on Sunday, an hour after the announcement, executive director Echo Huang acknowledged that some shareholders might be “reluctant to put more money into the company given its depressed share price”.

But the controlling shareholder was “putting up real money and taking on underwriting responsibility”, she said. “This is absolutely not intended to dilute or exploit minority shareholders, but to protect the company’s quality assets from being sold at low prices.”

Huang warned that without the recapitalisation, New World could be forced to dispose of assets on unfavourable terms. While the plan would require approval from independent shareholders, investors would not be obliged to subscribe even if it passed, she said, adding that shareholders could take up all, part or none of their rights.

The fundraising is part of a broader recapitalisation plan that also includes restructuring about HK$82 billion of offshore bank loans maturing between March 2027 and December 2029.

Chow Tai Fook Enterprises (CTFE), the Cheng family’s private investment vehicle, has committed to subscribe for its full entitlement of 12.55 billion shares and underwrite a further 8.21 billion shares, representing a maximum commitment of about HK$18.7 billion, or 75 per cent of the total fundraising. HSBC and DBS will underwrite the remaining 25 per cent.

In a statement on Sunday night, CTFE said it had “great confidence” in New World’s outlook and fully supported the developer’s capital reset plan.

It added that a rights issue was an appropriate fundraising approach because it gave all eligible shareholders an equal opportunity to participate in the company’s recovery and growth.

The group also backed the resumption of dividend payments when New World’s financial performance and liquidity permit.

If minority shareholders do not take up their entitlements and the underwriting commitments are fully exercised, the aggregate stake held by the Cheng family and its concert parties could rise to as much as 72.55 per cent, from about 45.6 per cent currently.

Thomas Fung, chief investment officer at China Rise Securities Asset Management, described the rights issue as a “last resort” for the developer after earlier attempts to avoid shareholder dilution and secure private equity funding failed.

The Cheng family’s backing could reassure investors about the developer’s financial support, Fung said. “At least the market can see that Chow Tai Fook Enterprises is supporting the company,” he added.

Under the debt-restructuring proposal, New World plans to use HK$8.2 billion of the rights issue proceeds to repay 10 per cent of outstanding offshore borrowings, while extending the maturity of the remaining 90 per cent by two years. The plan is subject to binding agreements being reached with all relevant lenders.

Of the estimated HK$24.1 billion in net proceeds, about HK$8.7 billion will go towards servicing other borrowings and interest payments, and settling deferred arrears on perpetual securities. The remaining HK$7.2 billion will fund the group’s property development pipeline.

Any unsubscribed shares will be placed with independent investors by HSBC. Under a compensatory arrangement, any net gains from such placements will be distributed to shareholders who do not take up their entitlements.

The rights issue and underwriting arrangements require independent shareholder approval. The Cheng family has also applied for a waiver from the Securities and Futures Commission to avoid triggering a mandatory general offer should its stake rise above 50 per cent.

Trading in New World’s shares and 14 bond issues, suspended since Friday morning, will resume at 9am on Monday.

The developer aims to generate HK$150 billion to HK$200 billion from property sales and asset disposals by the end of 2031, while reducing gross debt by HK$40 billion to HK$50 billion. It said it did not expect to conduct another rights issue in the next 36 months.

New World reported a net loss of HK$26.8 billion for the year ended June 2026, including HK$18.3 billion in impairments and provisions related to the early termination of its 11 Skies project at Hong Kong International Airport. Net debt stood at HK$126.3 billion at the end of June, while the group’s net gearing ratio was 68.3 per cent.