(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Chan Ka Sing
HONG KONG, Sept 26 (Reuters Breakingviews) - With age comes wisdom. For Hong Kong's embattled New World Development
, it has taken 54 years since its founding to conclude that maybe the conglomerate is better off run by someone outside of its founding Cheng clan. Such a move is nearly unheard of in the city dominated by family-run conglomerates. What happens at New World will put peers on notice.
Trading in the $3 billion malls-to-offices developer was suspended on Thursday. A day earlier, Bloomberg reported that the company may replace its CEO, the third generation scion Adrian Cheng, with someone outside the family. Cheng will be reassigned a non-executive role, the report added.
It's a rare and bold move. The 44-year-old is the grandson of the late billionaire Cheng Yu-tung, who built an empire spanning infrastructure, transportation, retail, and insurance. After taking over as CEO of the group's property development arm in 2020, the younger Cheng created the K11 group, which combines retail with art and culture. His flagship K11 Musea mall in Tsim Sha Tsui, for instance, calls itself "Hong Kong's Silicon Valley of Culture".
This has made Cheng, an avid entrepreneur, a social media icon but hasn’t helped his company's market value. Under his leadership, the developer's gearing ratio surged to 80%, among the highest of its peers; New World Development shares have plummeted roughly three-quarters under his leadership, versus a 25% fall in the Hang Seng Index during the same period. Last month, the company warned it expected a net loss of up to $2.5 billion for the financial year ended June, the first annual loss in two decades, thanks to write-downs.
Cheng had resisted core asset sales or rights issues. With him gone, both could be imminent. Shenzhen-based state-owned group, China Resources, has expressed interest in buying the K11 art mall and has offered $1.2 billion, real estate outlet Mingtiandi reported last month, citing sources.
Fellow tycoons will take note. The city's real estate slump is showing no signs of easing as local shoppers are opting for cheaper malls and restaurants across the border in Shenzhen. One of the biggest landlords in Hong Kong's Central business district, Henderson Land Development , founded by Lee Shau Kee, has been grappling with succession issues too.
Hong Kong's property scions are entering a brave new world.
CONTEXT NEWS
Hong Kong's New World Development shares were suspended from trading pending an announcement of inside information on Sept. 26.
The property developer is considering replacing its CEO, Adrian Cheng, Bloomberg reported on Sept. 25, citing people familiar with the matter. He will be reassigned to a non-executive role, the report added.
Adrian Cheng, 44, took over the top job at New World from his father, Henry Cheng, in 2020, and expanded its business quickly in both Hong Kong and mainland China, building many large-scale projects including flagship K11 shopping malls and offices with his passion for art and culture.
The Hong Kong property developer will report results for the financial year ended June on Sept. 26. The Hong Kong property developer said on Aug. 30 it expects a loss as much as HK$20 billion ($2.6 billion), its first annual loss in two decades.
(Editing by Robyn Mak and Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on KaSing.Chan@thomsonreuters.com))
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