HONG KONG: Blackstone Inc’s talks with New World Development Co have hit a roadblock because the billionaire family that runs the cash-strapped Hong Kong developer is reluctant to give up control, people familiar with the matter said.
Blackstone has proposed injecting about US$2.5bil into a special‑purpose vehicle to become the largest shareholder of New World, while the Cheng family would invest US$1bil to US$1.5bil, the people said, asking not to be identified because the matter is confidential.
Talks have slowed recently as the family explores deals with other investors without ceding influence, the people said.
New World was pushed to the brink of default last year after a debt-fuelled expansion collided with a deep property slump in Hong Kong and China.
The company has since held talks with New York-based Blackstone and other investors to help manage the debt.
The family of tycoon Henry Cheng holds about a 45% stake in New World and effectively runs the property firm.
Blackstone declined to comment. Chow Tai Fook Enterprises, the Cheng family’s private investment arm, and New World didn’t immediately respond to requests for comment.
New World shares slid 5.2% as of 11:05am in Hong Kong yesterday. The firm’s perpetual notes dropped about one US cent, according to a credit trader.
The stalled talks highlight the challenge global buyout firms face in securing control at family‑run companies in Asia, where founders are often reluctant to cede power.
Within Hong Kong’s tycoon world, family legacy is honoured, and future generations are responsible for protecting and carrying on the business.
All of the largest developers in the city are still tightly controlled by the founding families, including Li Ka-shing’s CK Asset Holdings Ltd and the Kwoks’ Sun Hung Kai Properties Ltd.
It also calls into question the role foreign investors play in helping to revive Hong Kong’s property market.
A successful deal between Blackstone and New World would have signalled the entry of foreign firms into family-controlled or financially stressed developers, boosting confidence in further non-core asset disposals or stake sales.
Blackstone’s push to resolve contingent liabilities tied to long‑term rental obligations at the 11 Skies mall has also become a sticking point, the people said, adding that the prospect of a deal is faltering.
New World has so far failed to secure government approval to reduce or unwind the guaranteed rent at the flagship centre, the people said.
New World has spent HK$20bil (US$2.56bil) developing the 3.8 million sq f complex on a site next to the Hong Kong airport.
Under the existing agreement, New World will pay a guaranteed rent of HK$1.8bil a year, or up to 30% of the project’s annual gross revenue. Payments will start in 2028 and continue until 2066.
The company is in need of additional capital injection, as challenges for the developer remain despite a record‑breaking US$11bil refinancing deal involving dozens of banks last year.
Earnings continue to suffer with a recent loss of HK$3.7bil announced last week.
The firm’s net debt rose by HK$2.6bil from six months earlier to about HK$122.7bil as of December, highlighting its ongoing struggle.
Its net debt to shareholder equity ratio stood at 90.9%, substantially higher than other major developers, according to Bloomberg Intelligence.
Some family members are concerned that even after pouring billions of dollars into New World’s rescue, they will still end up losing control of prized assets if a deal goes ahead, separate people familiar with the matter said.
The family is still weighing other options including funding proposals by different investors as well as asset sales, the people said late last year.
Founded in 1970 by Cheng Yu-Tung, a former gold shop apprentice from mainland China, New World is one of Hong Kong’s “Big Four” property developers.
The firm has built scores of apartment blocks throughout the city and owns iconic assets including the sprawling Victoria Dockside complex along Hong Kong’s harbour. The family also runs Chow Tai Fook Jewellery Group Ltd. — Bloomberg
