Text: Wise.com
The CORNICHE, a Hong Kong luxury residential project jointly developed by Logan and KWG, has once again been targeted by capital.
Recently, Ares Management, an alternative investment management company, has formally submitted a takeover proposal to a syndicate of banks led by HSBC to take over two-thirds of the project's HK$10.2 billion worth of debt.
Ares Management (NYSE: ARES) is a leading global alternative investment manager with investments in all major alternative asset classes, including credit, private equity, real estate and infrastructure. As of December 31, 2023, Ares has a global AUM of $419 billion and a market capitalization of more than $40 billion. Just recently, Wanda Commercial Management's latest financing of 60 billion yuan also has Ares.
THIS ISN'T THE FIRST TIME THE CORNICH HAS COME KNOCKING ON THE DOOR IN THE FACE OF A "BARBARIAN". Just last year, Li Ka-shing's CK Asset Holdings made a takeover bid for most of the project's debt, but the deal eventually fell through.
For Logan and KWG, once the relevant creditor's rights change hands, it will not only lose nearly 30 billion yuan of sales revenue from the project, but also may affect the process of debt restructuring.
Tens of billions of loans welcome new buyers
The focus of the incident was a HK$10.2 billion loan provided by the "HSBC + Standard Chartered + ICBC (Asia)" syndicate.
In 2017, Logan and KWG joined forces to defeat 13 developers including Cheung Kong for a record HK$16.9 billion, and won a residential land on Ap Lei Chau Lai Nan Road, Ap Lei Chau, South District, Hong Kong Island, and built THE CORNICHE on the plot, which is positioned as a luxury house with sea views in the middle of the mountain. Corniche, which means "coastal road along a mountain cliff", is often used as the name of a luxury residential project, and it's not hard to see how important the two companies are to the project.
THEN, IN 2019, LOGAN AND KWG USED THE CORNICHE PROJECT AS COLLATERAL TO LEND HK$10.2 billion to a syndicate led by HSBC for project development.
It is understood that the loan was raised by Qiwan (Hong Kong) Investment Co., Ltd., a 50% joint venture company owned by Logan and KWG, and was divided into HK $6.72 billion term loan and HK $3.855 billion revolving credit. It has been issued since 2019 for a total of five years and will expire on August 25 this year.
However, since 2022, Logan and KWG have defaulted on their debts, and the mortgage loan worth HK$10.2 billion has also been included in the scope of the offshore debt restructuring of the two companies.
In the case that both real estate companies have debt repayment risks, as creditors, the syndicate led by HSBC will face two major choices, believing that the real estate companies will successfully sell the money to repay the debts, or choose to cash out in advance. Obviously, the syndicate chose the latter.
It's not hard to understand. Construction of the project began in 2018 and will not be officially launched on the market until January 2023. As we all know, the property market at this time is in a downturn, not to mention that the products for sale by THE CORNICH are all "thousand-foot mansions", with an average price of hundreds of millions of Hong Kong dollars.
It is understood that the THE CORNICHE project includes 6 residential towers, with only 295 units for sale, with a saleable area of about 1340-9663 square feet (about 124-898 square meters), the main units are three-bedroom and four-bedroom, and there are also special units such as top-floor duplexes, large flats and platform gardens.
As China's economic growth slows, fewer and fewer wealthy Chinese buyers are willing to buy. According to public information, since 2023, only 5 units have been sold in the project. The lackluster sales naturally made the syndicate lose confidence in the solvency of the two major developers.
As the largest disnegator and creditor of the project, the syndicate actively seeks interested buyers. In mid-2023, the first potential buyer surfaced, CK Asset Holdings, offered to the syndicate to acquire a majority interest in the loan.
The intended acquisition was soon opposed by Logan and KWG, and they once publicly "accused" the Yangtze River of "taking advantage of the fire to rob" in an attempt to prevent the completion of the relevant transaction.
Who has the final say on the project?
The reason for Logan and KWG's opposition is simple.
AT THAT TIME, IT WAS A CRITICAL PERIOD FOR LOGAN TO NEGOTIATE DEBTS WITH CREDITORS, AND LOGAN INTENDED TO ADD ABOUT 15 MORE PROJECTS TO THE RESTRUCTURING PLAN AS FUNDS TO PAY FOR THE RESTRUCTURING PROJECTS, AND THE CORNICHE WAS ONE OF THEM. Once the project claims change hands, it will inevitably bring significant uncertainty to the negotiations.
Some analysts have said that no one can stop the syndicate from selling to whom, but Logan and KWG want to do credit enhancement, and once Cheung Kong takes over, it must be agreed by Cheung Kong, which may lead to the loss of credit enhancement of high-quality projects.
What's worse is that when the two real estate companies can't pay off the money, the creditor may take away the collateral, develop and sell it normally, and then return the balance to Logan and KWG, which also means that Logan and KWG will not only lose the project that can achieve long-term sales appreciation "hematopoiesis", but are more likely to lose about 6.6 billion Hong Kong dollars in land purchase funds.
YOU MUST KNOW THAT THE VALUATION OF THE CORNICH HAS REACHED 30 BILLION HONG KONG DOLLARS. If the project is lost, it will inevitably greatly weaken the scale of the underlying assets of the two companies, and even bring deep pressure to the guaranteed delivery.
In the end, as Logan and KWG had hoped, the deal fell through, but the reason had nothing to do with the opposition of the two companies.
According to people familiar with the matter, the collapse of the deal is mainly due to CK Asset's request for a higher discount than expected, and in this transaction, only a few banks such as HSBC are interested in selling the project, and most banks in the syndicate have no plans to sell for the time being.
However, as time passed, the debt restructuring of the two companies did not see much progress, and the sales situation did not improve, and it was difficult to repay the debt. A series of comprehensive factors have made the syndicate's intention to sell the project more consistent.
In the initial proposal, Ares offered a price of 95 cents per share for the syndicated loan, but it was not finalized, according to people familiar with the matter. The person added that the banks concerned have held meetings to discuss potential deals, which are expected to take several months to complete.
Perhaps because of the lack of a way to recover and the imminent expiration of the loans, the two companies seem to have given up on the last vestiges of going ashore, and at least so far there has been no public resistance.
As for Ares Management, if this transaction can be successfully completed, it will only use about HK$6 billion to leverage the value of 30 billion goods, which is really a "value" transaction, especially at the moment when the Hong Kong property market is recovering.
According to Midland Realty data, since the end of February, the mood of the Hong Kong property market has reversed, releasing the long-standing purchasing power, and the transaction volume of primary and second-hand transactions has risen sharply.
In terms of first-hand properties, the launch of new projects at attractive prices, coupled with the fast sales of tail-end goods, drove the first-hand transaction volume to a new high in March. In March, about 4,156 first-hand transactions were recorded in Hong Kong, representing a sharp increase of about 14.5 times from 268 in February, and a new high since the implementation of the First-hand Residential Properties Sales Ordinance in 2013.
Recently, Li Ka-shing's Cheung Kong Group cooperated with MTR to officially launch the Blue Coast Phase 3B of Wong Chuk Hang Station on the south coast of Hong Kong Island, and immediately removed 96% of the total amount of nearly HK$7.5 billion, of which nearly three became mainland buyers. This somewhat created a good time for the sale of THE CORNICHE.