The stakes are so high that in many cases, the banks’ chief risk officers have stepped in. — Bloomberg
HONG KONG: Hong Kong bankers have become fixated on an US$11bil loan deal with unusually high stakes for the financial hub.
New World Development Co (NWD), an embattled property developer controlled by one of Hong Kong’s richest families, is aiming to complete one of the city’s largest-ever corporate refinancing deals with more than 50 banks by the end of June after pushing back an initial deadline for this month.
So far, at least 12 banks have agreed to terms while the rest are still talking, according to sources.
Failure to reach a deal could lead to demands for immediate repayment.
The repercussions would threaten both NWD and many of the banks which are already suffering from a sharp rise in non-performing loans from commercial real estate.
The stakes are so high that in many cases, the banks’ chief risk officers have stepped in, sources said.
Even chief executive officers of banks are closely monitoring the situation with frequent updates, the people added, asking not to be identified as the matter is private.
“A NWD failure wouldn’t break the system, but that destabilisation could be contagious,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital.
“A ‘delay & pray’ strategy would buy time while doing little to alleviate underlying risk to the company or Hong Kong’s broader financial system.”
NWD aims to secure HK$87.5bil in refinancing.
It has commitments exceeding HK$20bil from Bank of China Ltd, HSBC Holdings Plc and Standard Chartered Plc, local lenders Bank of East Asia Ltd, Fubon Bank (Hong Kong) Ltd, Hang Seng Bank Ltd and French lender Credit Industriel et Commercial SA along with several other financial institutions.
NWD did not respond to a request for comment. The other banks are in the process of securing internal credit approvals.
A deal of this magnitude can take time as credit committees scrutinise every detail, raising numerous questions to evaluate the risks involved.
Some banks are waiting for lenders with greater exposure to sign on before they can secure their own internal approvals, said the sources.
A couple of other top Chinese, Japanese and Singaporean banks are in the final stages of approving the loan, according to sources.
“If one or two lenders in the syndicate are unwilling to commit, will the others in the syndicate be willing to take up the rest of the refinancing?
“If yes, the impact to the banking sector would be limited,” said Cusson Leung, chief investment officer for KGI Asia. — Bloomberg
