New World Development plans sweetening of terms on two loans that it is seeking

New World Development plans to sweeten the terms of two loans it is seeking, using a prized asset that it has already pledged as collateral for another facility, people familiar with the matter said this week.

Under the revised terms for the two loans, which total HK$87.5 billion (US$11.2 billion), the Hong Kong developer would offer the Victoria Dockside complex as a second-ranking security to banks, adding it to the approximately 40 other properties already in the collateral pool, the people said.

The term-sweetening would be made on the condition that the cash-strapped company obtained a new HK$15.6 billion loan that Victoria Dockside is intended to back, the people added. They asked not to be identified as they were discussing private matters.

The arrangement would give the two lenders some extra support, though they would rank lower than those on the new loan when it comes to the asset.

In addition, Chow Tai Fook Enterprises, which is controlled by the family of billionaire Henry Cheng Kar-shun, would offer what is known as a “letter of comfort” for the two loans, the people said. A letter of comfort is usually issued by a borrower’s parent or major shareholder to its lenders to show support, though it may not be legally enforceable.

New World, also controlled by Cheng’s family, faces one of the highest debt burdens among Hong Kong developers, as the city’s property market remains mired in a slump. The company has been in discussions with banks since January as lenders have grown increasingly cautious over its liquidity conditions.