The Corniche skyscraper was supposed to generate 30 billion Hong Kong dollars (3.55 billion euros) in sales after developers bought the land overlooking the South China Sea for a record price. Six years later, the project sits between a sewage treatment facility and a driving school, bearing little resemblance to the French Riviera its name evokes.
The nearby mall, converted from an industrial building, sells discount clothing and furniture. The property is a reflection of the fate of developers Logan Group and KWG Group Holdings, which once became among the largest in the country. This complex, instead of being a lifeline for these two companies facing $10 billion in foreign debt, The Corniche is a reminder of their rapid fall from grace.
Now creditors are demanding the two Chinese developers pay off their debts after they filed for technical bankruptcy. In the worst case, they could lose The Corniche if the banks demand immediate repayment of the loan for the project. Of the 295 apartments, only three have been sold as of May 22, according to Centaline Property Agency.
“All the promoters at the time were betting on a different economic policy environment in China,” says Monica Hsiao, founder and chief investment officer of Triada Capital. “Being able to monetize an offshore project is probably just one small piece to deal with in a long restructuring,” she adds.
land price record
Despite its steel frame and floor-to-ceiling windows, The Corniche location is proving a tougher sell than expected. Its curved silhouette stands in stark contrast to the rest of Ap Lei Chau, once a fishing island that has now become a middle-class neighborhood adjacent to public housing projects. The developers paid a record price of 16.9 billion Hong Kong dollars (2 billion euros) for the land.
Logan and KWG dreamed of a big project that would capture the real estate boom in Hong Kong at the time. This real estate rush promised to be supported by an influx of wealthy Chinese who preferred extravagant, luxurious designs with pretty views. China was also experiencing its own boom with a thriving economy. But now, the real estate sector is going down.
They joined a wave of buyers who grabbed land at prices that astonished local businesses. Logan and KWG envisioned the 1,200- to 9,000-square-foot units capturing the housing boom, backed by an influx of wealthy citizens who favored such designs. Then the trends changed. Chinese regulators clamped down on excessive borrowing, exacerbating liquidity shortages for developers already on shaky financial ground. Coupled with covid lockdowns and economic depression, it caused more than 100 dollar Chinese real estate bonds to default.
In Hong Kong, the property market also froze due to population outflows caused by protests, political tightening and travel restrictions. Suddenly, The Corniche looked very expensive. Since sales began in January, the first three apartments have sold for between 164 and 185 million Hong Kong dollars (19 and 22 million euros), 79% more expensive than Hong Kong’s benchmark luxury residence. Hong Kong, Bel Air.
Logan and KWG each own 50% of The Corniche. Both have creditors and banks lining up. Tension is building as the different parties scramble to find the best solution. Some of the largest banks operating in Hong Kong provided HK$10.2 billion (€1.2 billion) in loans to finance construction of the project. They include HSBC Holdings, Standard Chartered and Industrial and Commercial Bank of China (Asia).
The companies held a call with the lenders last week to discuss the loan. Logan has more than $6 billion in foreign loans that he’s trying to restructure. KWG has $4 billion in outstanding offshore bonds, according to data compiled by Bloomberg.
The Corniche could become a prime target for confiscation. The banks would get the first assets, but other bondholders could also try to save money from them. It’s easier to seize assets from developers in Hong Kong than in mainland China, said Ronald Thompson, managing director of restructuring and advisory firm Alvarez & Marsal. That is just what many have done. Banks seized the Hong Kong commercial property of Chinese real estate firm Cheung Kei Group earlier this year. Creditors also seized the founder’s $271 million home in March. Hui Ka Yan of China Evergrande Group lost his Hong Kong mansion and an office building to receivers.
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