New World makes biggest stock buyback since December to boost share price as financial toll from The Pavilia Farm demolition rises

The developer repurchased 3 million of its own shares at HK$37.1 each for HK$112.04 million on Friday, according to a filing to the HKEX
The stock plunged 5.7 per cent on Monday, after the 3.9 per cent decline a day earlier following its plan to tear down two apartment blocks

New World Development

Lam Ka-sing

Published: 5:42pm, 12 Jul 2021

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New World Development made its biggest share buy-back in nearly seven months last week, as it sought to put a floor under its share price the day after announcing the unprecedented demolition of two apartment blocks still under construction to fix defects.

The developer repurchased 3 million of its own shares at between HK$37.10 and HK$37.65 each for HK$112.04 million (US$14.43 million) in total on Friday, according to a filing to the Hong Kong stock exchange. The stock plunged by as much as 5.7 per cent on Friday to an intraday low of HK$36.20, after Thursday’s 3.9 per cent drop following its announcement to tear down and rebuild blocks 1 and 8 at The Pavilia Farm III in Tai Wai.

“They will buy more if the [company’s] share price continues to remain weak, given the positive outlook” of Hong Kong’s residential property market against the stock’s “very cheap” price, trading at about 55 per cent discount to net asset value, said CGS-CIMB Securities’ managing director Raymond Cheng.

The buy-back, the biggest since the developer bought 6.6 million of its own stock in December, adds to the tally of compensation and deferred earnings that New World has to bear in the financial year ending in March 2022. The developer could end up spending HK$1.2 billion – excluding its buy-back – or about 15 per cent of its expected profit for the year, to fix the problems, analysts said.

New World Development’s The Pavilia Farm residential property project atop the Tai Wai subway station on July 8, 2021. Towers 1 and 8 earmarked for demolition are highlighted in red. Photo: Sam Tsang

Based on a property price of HK$15 million, a buyer on a cash payment mortgage plan will receive an extra subsidy and interest compensation totalling HK$1.15 million. The total compensation and additional construction cost will work out to about 9 per cent of the contracted sales expected to come from The Pavilia Farm III, said UOB Kay Hian the brokerage.

Considering that Phases 1 and 2 recorded HK$24 billion in sales, the impact from the additional costs on the whole project sales could be around 3 per cent, brokers said.

Potential buyers queue up for Pavilia Farm III units in Tai Wai on June 20, 2021. Photo: Xiaomei Chen

Meanwhile, as the reconstruction is expected to delay completion by nine months, the expected sales recognition was initially for the second quarter of financial year 2024, and this could be now be delayed to the financial year of 2025.

Meanwhile, the developer on Friday suspended sales of the entire The Pavilia Farm development and sales venue in Tsuen Wan.

The developer decided to demolish and rebuild blocks 1 and 8 of the project in Tai Wai, after finding that the concrete walls in the podium of the two towers failed to “meet the requirements of the approved design” found during concrete strength tests.

New World’s buy-back came at a time when Hong Kong’s property market is regaining its bull run, after a brief slump brought by the city’s 2019 street protests. New World’s stock had risen by as much as 11.6 per cent this year to an intraday high of HK$40.30 on July 8 before the defects at the project were publicised.

Pressure from shareholders might “not directly” be the reason “but definitely its shareholders are not happy with share price performance, especially [with] the latest safety issue of The Pavilia Farm III”, Cheng said.

This article appeared in the South China Morning Post print edition as: New World buy-back after Pavilia Farm mishap

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