That quantity matches what she paid for the Repulse Bay land plot in 2011 at what was then the second-highest worth per sq. foot ever paid within the metropolis, HK$38,500 (US$4,900).
Agile, primarily based within the Guangdong’s provincial metropolis of Guangzhou, has borrowed in opposition to multiple Hong Kong property.
It took out a two-year, HK$894 million mortgage in June 2022 at an rate of interest of 20 per cent each year as a part of a plan to trim a debt load that amounted to 59.49 billion yuan (US$8.3 billion) on the time.
Luk couldn’t be reached for remark, and Agile didn’t reply to requests for remark.
The substantial hole between that 20 per cent charge and the present financial institution lending charge of 5.88 per cent underlines the desperation of debtors who discover themselves in need of liquidity at a time when public capital markets are stagnant and banks are cautious about lending.
It additionally outlines the alternatives obtainable to lenders prepared to underwrite non-public credit score – a market that has expanded 3.5 instances within the final decade, in line with information supplier Preqin.
Hong Kong property offers surge as steady rates of interest lure patrons
Hong Kong property offers surge as steady rates of interest lure patrons
With rates of interest at eye-watering ranges, property valuations falling and the native economic system recovering solely slowly, an rising variety of distressed builders and rich households in Hong Kong are turning to the non-public market regardless of its larger curiosity prices.
Because of this, the non-public credit score asset class in Asia-Pacific, together with Hong Kong and mainland China, reached US$81.3 billion in 2022 and is predicted to exceed US$100 billion by 2027, in line with Preqin.
“There are extra potential debtors,” stated Francis Ng, managing director and chief funding officer of Pacific Aegis Capital Administration Group (PACM), a Hong Kong-based firm specialising in actual property non-public debt funding.
“They’re extra in want of different and inventive capital options than earlier than, that means the money circulate is getting tighter as a result of the price of capital has gone up.”
The variety of initiatives the agency has within the preliminary screening stage has doubled from final yr, Ng added.
Whereas Hong Kong’s actual property sector is just not in a disaster like its counterpart in mainland China, sluggish dwelling gross sales, falling dwelling costs and record-high workplace emptiness charges have weighed on firms and people.
The variety of unsold models has collected over the previous two years as demand slumped amid 11 rounds of rate of interest hikes since March 2022.
Town’s builders offered 49 per cent of their accomplished models in 2022 and 72 per cent final yr, Citigroup estimated, including that dwelling costs are set to weaken by one other 10 per cent this yr.
Whereas the setting is dire, the ache is just not evenly distributed amongst builders, stated Foster Lee, head of credit score investments at non-public fairness agency Gaw Capital.
Blue-chip builders have stronger steadiness sheets and sufficient help from business banks and bond and fairness traders, whereas “smaller builders will battle, particularly these creating initiatives lately that haven’t but disposed of their stock”, he stated.
Banks have typically lowered their publicity to the town’s actual property sector. Whole loans for property improvement and funding began to drop within the second quarter of final yr, and the tally within the third quarter was down 5 per cent from the primary quarter, in line with the Hong Kong Financial Authority.
“Non-public credit score in the actual property sector will proceed to develop as a result of banks are retreating,” stated Ryan Chung, head of principal funding at Hong Kong-based dealer Huatai Worldwide.
“The wave of senior banks retrenching is just not at its peak. Many debtors can not refinance their current positions with the banks, or even when they do, the financing tends to be costly, with decrease leverage.”
As falling rental yields and better rates of interest create money circulate pressures, non-public credit score has develop into an alternate funding supply for debtors on the lookout for further leverage and cost flexibility – however at a price.
A unit of debt-laden developer Nation Backyard turned to non-public credit score lender Movement Capital (HK) to boost a HK$900 million mortgage in April final yr. The mortgage carries a “double-digit charge”, with an east Kowloon residential property, Allegro, as collateral, in line with a supply aware of the matter.
Agile, in the meantime, is now looking for to refinance its HK$894 million facility, for which residential initiatives on Mount Parker Street and King’s Street within the metropolis’s Quarry Bay space function collateral, sources stated.
The corporate’s complete borrowings, together with financial institution loans, senior notes and mainland company bonds, added as much as 57.57 billion yuan as of June 30, 2023, down barely from 59.49 billion yuan a yr earlier. The corporate reported a lack of 4.48 billion yuan for the six months to June 30.
“Earlier than mid-2023, it was a debtors’ market in Hong Kong, however the turnover has been dropping since then,” stated Kenny Chung, government director and cash supervisor at Astera Capital.
“Debtors are fearful of rising charges, whereas lenders additionally turned extra cautious with property valuations falling quick. They’d quite look ahead to extra indicators of stabilisation within the property market earlier than deploying their cash.”
Hong Kong property costs hit lowest since January 2017 on excessive rates of interest
Hong Kong property costs hit lowest since January 2017 on excessive rates of interest
Non-public credit score lenders are sometimes capable of supply loan-to-value (LTV) ratios larger than business banks as a result of the HKMA requires the latter to cap its LTVs at 50 per cent in opposition to business properties.
Banks additionally are inclined to have sectoral limits, which makes them extra conservative in the direction of debtors with constrained debt servicing capabilities.
Below the difficult market circumstances, Luk’s household is just not the one rich clan borrowing in opposition to its Hong Kong properties to unencumber money.
Ho Shung-pun, often known as one in every of Hong Kong’s “invisible wealthy”, raised a short-term mortgage from Gaw Capital final yr, which is securitised in opposition to his properties on Plantation Street on The Peak and Kowloon Funding Constructing in Mong Kok, in line with two sources. The mortgage measurement is unknown.
Moreover, Ho and different debtors in his household on January 17 obtained a one-year, HK$85 million mortgage from X8 Finance, an entirely owned unit of Hong Kong-listed Termbray Industries Worldwide, a inventory change submitting confirmed.
A former professor at Hong Kong Polytechnic College, Ho and his members of the family are the administrators of Kowloon Funding Firm, a Hong Kong-based property funding and administration agency established in 1955, in line with the Corporations Registry.
An unknown residential property the household owns within the metropolis is the safety for the HK$85 million mortgage, which carries an rate of interest as excessive as 29 per cent within the first two months from the drawdown date and 18 per cent after that.
The mortgage is a refinancing of a HK$44 million facility the debtors raised in June final yr, which had rates of interest of 25 per cent within the first month and 13 per cent thereafter.
China restoration solely mild at finish of tunnel for Hong Kong property: JLL chief
China restoration solely mild at finish of tunnel for Hong Kong property: JLL chief
The Put up was unable to succeed in the Ho household for remark.
Defaults could enhance amongst belongings which are troublesome to liquidate amid rate of interest uncertainty and gradual financial progress, in line with non-public credit score lenders.
“There will likely be extra defaults in 2024,” stated Gaw Capital’s Lee. “For among the non-public credit score transactions which were completed out there, the scenario has modified and maybe deteriorated.”
PACM has seen a 20 per cent enhance in defaults yr on yr, in line with Ng.
“It’s taking loads longer to liquidate loans which are secured by actual belongings,” he stated. “I believe it’s taking about twice the time it wants. And exit costs have to be additional adjusted down.
“In our funding universe, we now have to cost in the potential for default, which has at the very least 51 per cent likelihood of occurring for every mission.”
Many defaults will likely be resolved behind closed doorways.
“Having spoken to traders on this house, it’s desired by all events concerned to resolve all points amicably, hopefully away from the general public eye and on a low-key foundation, whether or not it’s within the secondary house or within the major house the place lenders could possibly be prepared to take a haircut to recuperate as a lot of the mortgage as potential,” stated Jonathan Chau, head of funding property and personal workplace of capital markets for Hong Kong at CBRE Group.
Asia’s fast-growing non-public credit score market has attracted private-equity companies, asset managers, household workplaces and retail traders.
“Attributable to its enticing returns in contrast with conventional property funding, non-public household workplaces have rushed into this house over the previous few years and have both invested passively into credit score funds or have dedicated to bigger ‘membership’ lending offers with consortiums of personal traders,” Chau stated.
The common annualised return for personal credit score is 12 per cent to fifteen per cent, up from the 8 per cent to 12 per cent vary earlier than the interest-rate hikes, in line with PACM’s Ng.
The interior charge of return for personal debt within the Asia-Pacific area stood at 11.17 per cent from 2019 to 2022, in contrast with 10.34 per cent in North America and eight.56 per cent in Europe throughout the identical interval, in line with Preqin. For distressed debt, it jumped to 14.78 per cent in Asia-Pacific.
“The asset class is nice for household workplaces and retail traders for a couple of causes,” Jeffrey Lau, head of personal credit score and particular conditions at Chinese language private-equity agency Primavera Capital Group, stated on the Non-public Fairness Discussion board in Hong Kong on January 26.
“One is their familiarity with the native economies, which implies, if we’re dealing in Asia, it’s typically simpler to speak to Asia-based traders as a result of they perceive the market dynamics.
“And secondly, we’re attaining returns for which they might in any other case want to take a look at equity-type merchandise.”
Market contributors stay optimistic concerning the continued progress of the non-public credit score market although rate of interest cuts are anticipated later this yr.
Main Chinese language cities ease home-buying curbs as coverage help gathers tempo
Main Chinese language cities ease home-buying curbs as coverage help gathers tempo
“Non-public credit score will proceed to be a highlight within the at the moment grim market,” stated Maggie Kwok, Asia head of funds and regulatory apply at regulation agency Harneys.
“If the rate of interest goes to come back down, it should come down progressively. And there are at all times going to be companies that want entry to capital, which banks, frankly talking, usually are not going to have the ability to fulfill.”
“It is not going to be shocking to see extra deal pipeline progress within the first half of 2024, however we don’t envision seeing the market flooding with ‘distressed’ alternatives,” stated CBRE’s Chau.
Whereas some property house owners are dealing with monetary problem, most funding properties are within the arms of financially sound company {and professional} landlords, he added.
