China property

Property scare: Hong Kong conglomerate speeds up China asset sales as outlook darkens

PUBLISHED : Wednesday, 30 December, 2015, 9:43pm
UPDATED : Thursday, 13 July, 2017, 8:25am

Billionaire Cheng Yu-tung’s New World Development (NWD) has accelerated asset sales amid a poor outlook for the property market, raking in nearly HK$60 billion since May, including the latest deal to sell five developments in China to Evergrande Real Estate.

The patriarch announced retirement in early 2012, naming eldest son Henry Cheng Kar-shun as chairman. The next generation is understood to be less upbeat about the real estate market.

The octogenarian tycoon was hospitalised in September the same year and has not been seen in public since. In April this year, Cheng’s grandson Adrian Cheng Chi-kong was appointed executive vice-chairman, in a move seen as the gradual transfer of control of the business empire to the next generation.

“The group’s strategy has deviated from traditional developers’ build-and-sell model. Its quickened pace of asset sales indicates the new management’s cautious outlook on the property market in Hong Kong and the mainland,” said Alvin Cheung Chi-wan, associate director at Prudential Brokerage.

The Hong Kong property market is widely expected to be heading for a correction while the real estate industry on the mainland continues to be plagued by oversupply in second- and third-tier cities.

“Investment return from property development will be less attractive as buying demand drops. It is better to sell rather than hold,” said Cheung.

On Tuesday, NWD and its controlling shareholder Chow Tai Fook Enterprises announced selling five projects on the mainland to Evergrande Real Estate for HK$24.4 billion.

It was the second sale to Evergrande this month, following New World China Land’s sale of three projects in Hubei, Guangdong and Hainan provinces for HK$16.36 billion.

In May, NWD sold down its stake in three of its luxury hotels – including the flagship Grand Hyatt Hong Kong in Wan Chai – for HK$18.5 billion to a joint venture with the Abu Dhabi Investment Authority (ADIA).

READ MORE: Developer Evergrande tops Chinese businesses taking assets off Hong Kong tycoons

In NWD’s latest deal, it is selling the five developments to Evergrande through cash and equity. Apart

from paying 10 billion yuan in cash, Evergrande will issue US$900 million perpetual bond at a 9 per cent annual return to NWD. That means that instead of developing and marketing the property projects itself, NWD has chosen to receive an annual interest income of US$81 million.

“It is obvious New World is eager to exit from the mainland inner cities,” said a Hong Kong-based property analyst who did not want to be named. “Their local sales and marketing team are less equipped for the mainland.”

The analyst, however, said he didn’t see any sign New World would also withdraw from Hong Kong market, given they have two big projects under construction in Tsim Sha Tsui.

David Hong, head of research at consultancy China Real Estate Information Corp’s Hong Kong office, said Hong Kong investors are increasingly looking to optimise their returns through investing in mainland developers instead of conducting sales by themselves.

On Monday, Cheng Yu-tung also transferred his shares in six Hong Kong-listed companies valued at about HK$3.8 billion to family-owned Chow Tai Fook Capital, sparking fears that the patriarch’s health may be deteriorating.

“My father is in good shape. Previously these shares were held by my father but are now being transferred to the company (Chow Tai Fook). It is not a big change,” said Henry Cheng.