Hong Kong billionaire Henry Cheng, a prominent figure in property and jewelry, is navigating a series of challenges as his businesses face significant headwinds. Last June, his flagship property company, New World Development, reported a record annual net loss of HK19.7billion(2.5 billion), the largest since its founding by Cheng’s father, Cheng Yu-tung, in 1970. Revenue also fell by over a third to HK$36 billion, reflecting the struggles of Hong Kong’s sluggish real estate market.
In December, New World was removed from the Hang Seng Index, a key benchmark for Hong Kong stocks. By January, its share price had plummeted to its lowest level since the company went public in 1972. Over the past year, the stock has lost half its value, significantly impacting Cheng’s net worth, which dropped by 2.6billionto19.5 billion. Despite this, Cheng remains Hong Kong’s third-richest person.
Debt Woes and Investor Concerns
Jeff Zhang, an equity analyst at Morningstar, notes that New World’s financial position is weaker compared to other major Hong Kong property developers. As of June, the company carried HK$124 billion in debt, with a net gearing ratio of 55%—the highest among its peers. In contrast, Henderson Land Development, led by billionaire Lee Shau Kee, reported a debt-to-equity ratio of 22%, while Sun Hung Kai Properties, controlled by the Kwok family, stood at 18%.
In response to investor concerns, New World announced in January that it had refinanced HK$17.8 billion in bank loans since July. The company also addressed rumors about selling one of its prized assets, a Hong Kong mall under its K11 brand, stating that while offers had been received, no deal was finalized. New World denied reports of a debt restructuring, emphasizing that it continues to operate as usual.
Leadership Shifts and Strategic Challenges
The K11 brand, a cornerstone of New World’s strategy, was spearheaded by Henry Cheng’s eldest son, Adrian Cheng, who aimed to transform the family’s property business. In a 2020 interview with Forbes Asia, Adrian described his vision as “disrupting and rejuvenating” the traditional model. However, his aggressive expansion, fueled by heavy borrowing, faced setbacks due to rising interest rates and China’s economic slowdown.
Adrian stepped down as CEO of New World in September, passing the role to Chief Operating Officer Eric Ma. Two months later, Ma was replaced by Echo Huang, CEO of the company’s mainland subsidiary. This leadership instability has raised concerns among investors, further clouding New World’s outlook, according to Morningstar’s Jeff Zhang.
Jewelry Business Also Under Pressure
Another major asset in Henry Cheng’s portfolio, Chow Tai Fook Jewellery Group, is also feeling the strain. Overseen by Cheng’s daughter, Sonia Cheng, the company reported a 44% drop in net profit to HK2.6billionforthesixmonthsendingSeptember30.Revenuefellby2039.4 billion, driven by a 25% decline in same-store sales in mainland China, its largest market. Mainland China accounts for 84% of Chow Tai Fook’s revenue, with nearly 7,000 stores operating in the region.
Despite these challenges, Linda Huang, Macquarie’s head of Asia consumer research, remains optimistic. She believes the company’s recent decision to close hundreds of underperforming stores will improve profit margins in the long run.
Looking Ahead
Henry Cheng’s businesses are at a critical juncture, grappling with a challenging economic environment and internal restructuring. While the road ahead remains uncertain, the Cheng family’s ability to adapt and innovate will be crucial in weathering the storm and restoring investor confidence.
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