HONG KONG, Sep 27 (Askume) –Shares of Hong Kong New World Development Ltd (0017.HK) surged 20% in early trade on Friday after the loss-making and debt-ridden property developer announced a leadership change.
New World said on Thursday that Ma Shaozhang will be promoted from chief operating officer to chief executive officer, replacing Cheng Zhigang, the third generation of the company’s founding family .
The surprise resignations somewhat offset the impact of New World Group’s HK$19.7 billion ($2.5 billion) net loss in the financial year ended June due to a drop in revenue, higher financing costs and huge impairment losses.
This was the company’s first annual loss in two decades, compared with a net profit of HK$548 million the previous year. However, based on core income from continuing operations, its profit was HK$6.9 billion, a decrease of 18%.
JPMorgan said management changes were unlikely to be a quick solution to the company’s deteriorating balance sheet, noting that its adjusted net gearing ratio had increased to 85% from 77%.
New World will “have to go through a painful deleveraging process through asset disposals in the coming years… Investor confidence may not be restored until there is more evidence that liquidity pressures have eased.”
Shares surged on Friday, valuing New World at about $3.2 billion, well below the $12 billion it was worth when Cheng took the top job in May 2020.
It is unusual for outsiders to lead a Hong Kong tycoon family business, but analysts say changing the corporate culture by bringing in professional managers could benefit the company.
Citi said in a research note: “We believe that the operational continuity of large and well-known enterprises depends on systems rather than individuals, and professional management may be more practical in terms of cost and risk.”
New World, Hong Kong’s most indebted company, said it would sell HK$13 billion of non-core assets but reiterated that it would not consider a rights issue.
