Local market braces for ripple effects from New World Development’s massive debt deal

The local banking and real estate sectors are cautiously optimistic following a record-breaking refinancing deal by Hong Kong’s New World Development (NWD), a move seen as a stabilizing force for the region’s strained property market.

While NWD’s HKD88.2 billion (USD11.2 billion) refinancing may appear distant, experts in Macau say the implications are worth monitoring.

As one of the largest developers in the region, NWD’s financial health has ripple effects across the Greater Bay Area – including Macau, where banking and property leaders are focused on local resilience amid regional volatility.

“We are happy about this news but it’s business as usual. Same risk management process as before,” said Carlos Álvares, CEO of Banco Nacional Ultramarino (BNU), to the Times.

Álvares emphasized that lending decisions are made carefully and independently of sector-wide trends. “It’s a case-by-case basis. There are good sectors with bad companies and bad sectors with good companies,” he said.

He pointed to BNU’s strong local foundation, particularly in housing loans backed by stable employment sectors.

Carlos Álvares

“We bank mostly with the ones that have Macau SAR as the owner of the job,” Álvares added, noting most clients are permanent residents working as public servants or in the casino industry.

On developers linked to the SAR government, Álvares was confident: “If the developers deliver the job as it is supposed to happen, the government will pay. Almost no risk involved.”

Still, he acknowledged headwinds affecting privately funded developers. “Weaker demand affects treasury,” he said, although he added that the bank has “seen more transactions that can give a positive sign to the market.”

BNU’s loan book remains conservative, with Álvares citing a low non-performing loan ratio of just 1.2%, alongside “a low effort rate and low loan-to-value (LTV).”

Consumer and retail patterns

Beyond property, Macau’s financial system is grappling with changing consumer behavior. Álvares pointed to two trends – the rise of online commerce and the “going north” effect, referring to locals shopping across the border – as pressure points for local retailers and small businesses.

“Shopping behavior is evolving, affecting not only Macau but many cities worldwide,” he said. “There’s also this ‘going north’ effect, which is a concern for many street-level shops and retailers. They need to change – to rethink business models they have relied on for years. We’ve seen some success stories, but the reality is clear: people must do things differently.”

Roy Ho

Local property dynamics

Roy Ho, senior director of Centaline Property (Macau), also weighed in on Macau’s real estate outlook, noting that investor appetite had been historically low but appears to be rising.

“Investment interest has increased since June,” Ho told the Times, citing more favorable valuations and yields.

He pointed to “well-priced, fully furnished units” in Hong Kong’s Tin Shui Wai as one example. In Macau, he referenced the recent sale of the 13th hotel at a “very low price,” which drew significant investor interest.

“If the volume in the mainland starts to narrow its decline […] and there is not much supply, it may be good, it may be getting better,” Ho said. “The real estate market is cyclical, and with early signs of increased investor interest, a turnaround may be on the horizon.”

A temporary lifeline for NWD

NWD, one of Hong Kong’s most prominent property developers, secured what Bloomberg described as the largest offshore refinancing ever by a Hong Kong company.

The deal consolidates the company’s existing offshore debt into a single facility with staggered maturities beginning June 30, 2028.

The agreement comes after months of tense negotiations. Reports revealed that bankers pitched the deal not on NWD’s performance but on the potential fallout of a failure. With NWD’s assets equivalent to nearly 10% of Hong Kong’s annual GDP, a default could have triggered a further 7% drop in home prices this year alone, according to analysts.

CEO Echo Huang called the refinancing “a testament to the confidence placed in our operation,” adding that the group remains focused on “reducing indebtedness and improving cash flow.”

Still, the challenges are not over. The company – controlled by the family empire of billionaire Henry Cheng – posted its first annual loss in 20 years in 2024, and as of year-end, carried HKD211 billion in total liabilities, according to Bloomberg Intelligence.

In a leadership shake-up, Adrian Cheng, heir to the business and former CEO, exited the company yesterday (July 1), resigning as non-executive director and vice-chairman to focus on “public service” and “personal commitments.” The company stressed that his departure involved “no board disagreements.”

Systemic Strains Remain

Despite the temporary relief offered by the refinancing, Hong Kong’s broader property market remains fragile. Prices have declined about 30% over the past four years, while negative equity has hit a 20-year high. Vacancy rates for offices are also at record levels.

Still, sentiment may be stabilizing. Government measures – including reduced property taxes and eased mortgage rules – have helped, while hopes for interest rate cuts by the US Federal Reserve could further support market liquidity. Mainland Chinese buyers have also contributed to increased activity.

Macau’s Differentiated Outlook

Unlike Hong Kong, Macau’s real estate and banking sectors remain relatively insulated. Álvares highlighted Macau’s scarcity of developable land and its limited bank exposure to speculative real estate projects. 70% of BNU’s credit portfolio, he said, consists of housing loans to stable, salaried residents.

For Macau, the risk of regional contagion appears manageable. “We will have to look at the data when the time comes, but the predictions are no more than one or two years,” Ho said, reflecting on where the local market could be heading.