UBS Group halted accepting some bonds and shares of New World Development as collateral for margin loans, joining other global lenders in suspending such financing for rich clients, according to people familiar with the matter.
The wealth arm of the Swiss bank cut back the lending in recent weeks, one of the people said, asking to not be identified discussing private information. The private banking arms of Citigroup and HSBC Holdings also stopped lending on New World securities some months back, said the people.
Spokespeople from UBS, HSBC and Citi declined to comment. Banks review such lending requirements regularly and the lending values could be subject to change.
Concerns are growing over the financial state of the developer controlled by the family of Hong Kong tycoon Henry Cheng. New World is one of the most closely watched property firms due to its high leverage amid a prolonged property downturn.
On Monday (Jan 20), in a response to market speculation, the firm released a statement saying that it was not in any discussions on a “holistic debt restructuring.” It has offered properties valued at US$15 billion as collateral for loan refinancing, underscoring its increasingly onerous funding conditions, Bloomberg reported on Tuesday.
New World late last year asked banks to postpone the due dates of some bilateral loans. Some of the firm’s bonds were on pace for their biggest daily decline since issuance on Monday, according to traders.
Adrian Cheng, the third generation New World scion stepped down as chief executive officer in September after steering the developer to its first annual loss in two decades. Just months later, the firm replaced his successor.
Wealthy clients in Asia often take on leverage against securities to make investments. Banks typically consider the volatility of a security’s price and its credit rating among factors when determining lending values. Private banks in the past two years have curbed margin funding on bonds of China property developers as that sector ran into turmoil. When a private bank cuts lending values to zero, clients typically have to top up with cash or another form of collateral and if they fail to do so, their securities can be liquidated. BLOOMBERG
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