20250602-招银国际-CMBI_Credit_Commentary__NWDEVL__A_negative_surprise_3页_553kb

CMBI Credit Commentary Summary

Core Content

This document provides an analysis of the credit situation of New World Development (NWD) and its impact on its perpetual securities (perps) and bonds. The focus is on the recent announcement of coupon deferral for four of NWD's outstanding perps, which has raised concerns among investors and relationship banks.

Main Points

• Coupon Deferral Announcement: NWD has deferred USD77.2mn in coupon payments for four of its perps. This is unexpected, given recent media reports on positive progress in loan refinancing and the expectation of closing the refinancing soon.

• Timing of Coupon Deferral: The deferral comes at a sensitive time. Previously, in December 2024, NWD chose to continue coupon payments despite a similar opportunity. This suggests that the deferral may be a significant event, potentially signaling financial distress.

• Key Question for Banks: The main concern is whether the coupon deferral is a negative surprise to NWD's relationship banks. If it is, this could affect the timeline and terms of the loan refinancing process.

• Loan Refinancing Outlook: The base case remains that loan refinancing will be completed. This is supported by the lower HIBOR rates, progress in contract sales, and NCD targets. However, the deferral may introduce uncertainty, leading to more demanding terms from banks.

• Coupon Deferral Details: Coupon payments can be deferred but not skipped, and deferred coupons will accrue interest. This implies that NWD may face additional financial obligations in the future.

• Market Reaction: The perps of NWD have seen a decline of 3-31 basis points following the coupon deferral, while dated bonds have remained relatively stable. This indicates that the market has priced in significant downside risk.

• Bond and Perp Analysis: Among the outstanding securities, the NWDEVL 5 1/4 PERP is highlighted for offering a better risk-return profile due to its largest coupon step-up. The NWDEVL 8 5/8 02/08/28 bond is preferred for its highest cash yield.

• Future Refinancing Pressure: If the loan refinancing is completed, NWD will have significantly reduced short-term debt obligations in 2025 and 2026. This could relieve liquidity pressure and reduce the need for immediate restructuring of USD bonds and perps.

• Investor Priorities: NWD and the Cheng family are likely prioritizing the resumption of stock dividend payments and settling deferred coupons, although completing the loan refinancing remains the top priority.

Key Information

• Coupon Deferral Impact: The deferral may affect the confidence of relationship banks, potentially delaying the loan refinancing process or increasing its complexity.

• Liquidity and Refinancing: The significant drop in HIBOR and progress in sales are positive signs for NWD's liquidity. However, the coupon deferral introduces uncertainty.

• Market Valuation: Current bond and perp prices suggest that the market has already priced in a substantial amount of downside risk.

• Investment Recommendations: For bonds, NWDEVL 8 5/8 02/08/28 is preferred due to its high cash yield. For perps, NWDEVL 5 1/4 PERP is considered to have a better risk-return profile.

Table of Bond Profiles

Disclaimer and Legal Information

• The report is prepared by CMB International Global Markets Limited (CMBIGM) for informational purposes only and does not constitute investment advice.

• CMBIGM is not a registered broker-dealer in the United States, Singapore, or the United Kingdom and may not be suitable for all investors.

• The report may contain conflicts of interest, as CMBIGM may have positions or engage in transactions related to the companies discussed.

• The information is based on publicly available data and is not guaranteed for accuracy or completeness. It is subject to change without notice.