Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Adrian Cheng, the heir apparent to one of Hong Kong’s wealthiest families, became chief executive of the family property business in 2020, when its market cap was more than HK$90bn (US$11.5bn) and it was riding high on China’s economic boom.
Four years later, New World Development’s stock has fallen more than 80 per cent as the real estate market has slumped. Cheng, the third-generation scion, has come under fire for his extravagant projects, and his once secure status as successor is in question after his father Henry said he might hire from “outside”.
New World announced in early September it expected to post its first annual loss in two decades of up to HK$20bn, underlining the difficulties facing 44-year-old Cheng as he tries to weather the storm.
“Today we face one of the most challenging combinations seen in decades — from high interest rates to uncertain market conditions,” said Cheng in a statement to the Financial Times. “I believe this game of patience paired with consistency and dedication will eventually get us to our goals.”
The Chengs are among a handful of powerful families that dominate Hong Kong’s property market, which became one of the world’s most expensive as the financial hub prospered during China’s rapid development. Patriarch Henry is estimated by Bloomberg to have a net worth of about $17.7bn.
Cheng, the eldest of four siblings, was “bright”, “ambitious” and “a favourite” of his late grandfather Cheng Yu-tung, a businessmen who started out as a jeweller’s apprentice in Macau before founding New World in 1970, according to a former executive at the company.
“[Cheng Yu-tung] recognised and valued him . . . including his creativity” and “really wanted to nurture him”, said the executive about Cheng.
After graduating with a bachelor of arts from Harvard, Cheng worked as a banker at Goldman Sachs and UBS before becoming executive director in 2007 of New World, where he shadowed his father and grandfather.
Cheng has set himself apart from other Hong Kong property tycoons through his “cultural commerce” model of incorporating art and design into his projects. In 2008, he launched K11, a brand of malls and office buildings in Hong Kong and mainland China that showcases leading designers and contemporary artists.
Last year, Cheng helped orchestrate a menswear show by Louis Vuitton outside K11 Musea’s retail and office complex, a $2.6bn property with a luxury mall, hotel and boulevard located on the glittering waterfront of Victoria Harbour.
Cheng developed a caramel scent and music playlist for the mall, where works by Spanish cartoonist Joan Cornellà and US contemporary artist Sterling Ruby are among the items on display.
Former and current staff described him as very “hands-on” in all areas of business. During the coronavirus pandemic, Cheng set up production lines in Hong Kong to manufacture masks and went to the factory floor to check for quality, said a person close to him.
But colleagues have also raised concerns about the company’s aggressive expansion under his leadership, according to several people familiar with New World.
In recent years, Cheng has made big bets on marquee projects. He has overseen the construction of a $2.6bn mall and office complex next to Hong Kong’s airport and a $1.3bn retail and office complex in Shenzhen, a city just over the Hong Kong border.
UBS analysts estimated in September that New World’s net gearing could reach 84 per cent by June 2024, adding that the projected loss is “substantial compared to its current market cap at HK$19.8bn”. High leverage at New World has been a “lingering issue” that can require “a longer time to resolve” given the property slump, said Morningstar equity analyst Jeff Zhang.
“My team and I have undertaken a number of tough measures to reset, adapting our strategies and further strengthening our business — from refinancing debt, selling non-core assets and working to attract flagship brands to our retail operations,” said Cheng. “In difficulty lies opportunity.”
The developer last reported a loss in 2004, when the Sars epidemic caused a temporary property crash. However, the conditions are different today.
Hong Kong’s real estate market has been under pressure since 2019, when pro-democracy protests and Beijing’s subsequent imposition of a national security law shook confidence in the financial hub.
Three years of tough “zero Covid” pandemic policies prompted an exodus of people from the territory, and high US interest rates have aggravated the slump as borrowing costs in Hong Kong are linked to US rates through the currency’s peg to the dollar.
Cheng also faces turbulence within his own family. Last year, his father Henry sparked succession speculation after remarking publicly that he was yet to decide on a successor.
Each of Henry’s four children are now leading different parts of the business. Adrian is in charge of New World, sister Sonia serves as vice-chair of Chow Tai Fook Jewellery and brother Brian is co-chief executive of infrastructure and insurance group NWS Holdings. In August, Henry appointed his youngest son Christopher as co-chief executive of the family’s key private investment vehicle. Henry serves as chair of the biggest businesses in the family empire.
While Cheng is in the spotlight, “as long as he can endure and get through this difficult period, I’m sure things will turn out OK for him”, said the former New World senior executive, adding that Cheng was “willing to learn”.
