New World promotes Eric Ma to CEO, replacing Adrian Cheng after reporting HK$19.7 billion loss

By Salina Li and Cheryl Arcibal

/ South China Morning Post |

September 26, 2024 5:55 PM SGT

The K11 Musea shopping mall, developed by New World Development’s K11 Group, in Hong Kong’s Tsim Sha Tsui shopping district on September 2, 2024 (Photo: Bloomberg)

New World Development reported its biggest loss on record, as a loss from continuing operations devastated the balance sheet of one of Hong Kong’s largest property-linked conglomerates and upended the succession plan of the company’s third-generation scion.

Adrian Cheng Chi-kong stepped down as New World’s CEO, handing over to Eric Ma Siu-cheung the job that he had held for four years, after overseeing a loss of HK$19.7 billion (US$2.53 billion) in the financial year that ended in June. Revenue slumped by 62 per cent to HK$35.78 billion.

Cheng will take on a non-executive role as New World’s vice-chairman, after four years as the heir apparent to his father, chairman and executive director Henry Cheng Kar-shun. New World was founded in 1970 by the late Cheng Yu-tung, Hong Kong’s jewellery magnate and the clan patriarch.

Looking to invest in overseas properties? Explore projects available for sale around the world

“Third-generation successors of large family empires are typically under tremendous pressure, [especially] if they face economic headwinds, high expectations from family members and significant visibility in the business community”, said Marleen Dieleman, who leads family-business research at the IMD Business School in Singapore. “It is a difficult context to succeed in, no matter how talented one may be.”

Adrian Cheng Chi-kong at a press conference on Mega Events Economy at the Central Government offices in Tamar, Hong Kong on 26 January 2024 (Photo: Edmond So/SCMP)

Cheng was first appointed as an executive director in March 2007 and promoted to executive vice-chairman and CEO in May 2020.

He is currently overseeing the company’s large-scale developments including Victoria Dockside in Tsim Sha Tsui and Hong Kong International Airport Skycity complex, 11 Skies, the 3.8 million sq ft complex touted as Hong Kong’s largest indoor entertainment hub.

Cheng also established a venture capital fund, putting his financial weight behind a variety of investments from non-fungible tokens to a so-called blank cheque company that took over a blood-diagnostics company.

The latest change of guards at New World completed the reshuffle of executives that began less than a month ago at its parent company Chow Tai Fook Enterprises (CTFE), a move that was said to “accelerate growth and strengthen operations”.

In the earlier reshuffle, CTFE set up a CEO’s office with three executives at the helm: Gilbert Ho Chi-hang, Patrick Tsang On-yip and Christopher Cheng Chi-leong, one of the youngest members of the Cheng clan.

Shares of New World rose 2.5 per cent yesterday (on Wednesday) to a four-month high in Hong Kong before trading was halted pending its full-year results announcement.

New World’s core operating profit fell 18 per cent from last year to HK$6.898 billion, as its continuous operations for the year contracted.

Eric Ma Siu-cheung, Chief Executive Officer of NWS Holdings, attends the NWS 2019 Interim Results Announcement at Hong Kong Convention and Exhibition Centre in Wan Chai (Photo: Edmond So/SCMP)

The biggest blight on New World’s balance sheet is its debt, which stood at HK$118.92 billion at the end of December. The financing cost from floating rate and fixed-rate loans ballooned to HK$2.9 billion during the period due to rising interest rates, according to its interim results statement.

The company’s “high debt [was due to] historical factors, but the rapid expansion of investment properties on the mainland and in Hong Kong in recent years has led to high leverage”, said Morningstar’s equity analyst Jeff Zhang.

To pare its debt, New World has resorted to selling assets and refinancing its borrowings. The company refinanced and repaid HK$35 billion of loans and debt in the first half that ended in December. It sold 51 per cent of a prime office building in Cheung Sha Wan for HK$3.07 billion in September 2022 to its partner, a unit of the US private equity firm Ares Management. Three months later, New World sold the 695-room Pentahotel in Kowloon for HK$2 billion.

This year, New World sold its D-Park Shopping Centre and associated parking spaces in Tsuen Wan to private developer Chinachem Group for HK$4.02 billion.

“Its expansion was quite fast right before the Covid-19 pandemic hit, so its net gearing went up quickly because of capital expenditure in Hong Kong and on the mainland”, said CGS Securities’ senior property analyst Will Chu. “It may have to sell some property to bring material positive impact on its net gearing.”

To turn things around, New World is looking outside the clan for help. Ma, the incoming chief executive, has been the company’s chief operating officer since 2022.

Ma served as Hong Kong’s undersecretary and then Secretary of Development from 2014 until 2017 during Leung Chun-ying’s administration. He joined New World Department Store China Limited as chief operating officer in 2018, where he helped to turn the company’s namesake shopping centres on the mainland into profit last year.

“We will increasingly see non-family members take leading roles in Asia’s family businesses, especially in large conglomerates such as New World”, said IMD’s Dieleman. “As we can see in the trajectories of older family firms elsewhere, the role of family members changes over time. The family focuses more on stewardship of the family legacy and on entrepreneurship while making use of a mix of family and non-family talent to grow legacy businesses.”

With additional reporting by Ao Yulu

Tags: