New World Development Shares Plummet Amid Massive Loss Forecast
Hong Kong's New World Development forecasts substantial losses, causing shares to drop 14%. The company cites revenue shortfall, interest rate hikes, and currency depreciation as key factors.
New World Development, a prominent Hong Kong property developer, experienced a significant setback as its shares plummeted 14% on September 2, 2024. This sharp decline followed the company's announcement of an anticipated net loss ranging up to HK$20 billion ($2.6 billion) for the fiscal year concluding in June 2024.
The company's stock reached HK$6.74 in early trading, marking its lowest point in 21 years. This dramatic fall reflects growing concerns about the financial health of one of Hong Kong's largest property firms.
New World Development attributed the projected loss to several factors:
- Lack of revenue
- Fair value and impairment losses up to HK$9.5 billion
- Continuous interest rate hikes
- Depreciation of the Renminbi
The company expects a decrease of up to 23% in core operating profit from continuing operations. Despite these concerning figures, New World Development emphasized that the provisions are one-off, non-cash items that do not impact the group's cash flow.
This financial predicament highlights the challenges facing Hong Kong's property sector. The city, known for its expensive real estate market, has been grappling with economic difficulties since the 2019 protests and the COVID-19 pandemic. The property market has been cooling since 2021, affected by various local and global factors.
New World Development's situation is particularly noteworthy due to its high debt-to-equity ratio among Hong Kong property developers. Investors have been closely monitoring the company's de-leveraging efforts over the past year, reflecting broader concerns about liquidity in the sector.
While Hong Kong has not witnessed major debt defaults by property developers, unlike mainland China, the sluggish residential and commercial property markets have raised concerns about the sector's overall health. This situation is particularly significant given that Hong Kong's economy heavily relies on its property and financial sectors.
The challenges faced by New World Development are set against the backdrop of Hong Kong's unique economic landscape. The city operates under the "One Country, Two Systems" principle and maintains a currency peg to the US dollar, which influences its interest rates. These factors, combined with the depreciation of the Renminbi, have contributed to the complex economic environment in which property developers are operating.
As Hong Kong strives to diversify its economy, the performance of major companies like New World Development remains crucial for the city's overall economic stability and growth prospects.
"Together with the continuous interest rate hikes experienced during the year as well as the depreciation of Renminbi, the group expects to record a (net) loss"
This situation serves as a reminder of the interconnectedness of global economic factors and their impact on local markets, even in major financial hubs like Hong Kong.
