HK$30 billion luxury homes in Hong Kong encounter 'barbarians' again, Logan Group and KWG Group's 上岸 (上岸 means 'going ashore', but in financial context, it implies 'getting out of financial difficulties') seems further away.
The luxury residential project THE CORNICHE in Hong Kong, jointly developed by Logan Group and KWG Group, has once again attracted the attention of capital.
Recently, alternative investment management firm Ares Management $ARES Management LP(ARES.US) has formally submitted a acquisition proposal to the banking consortium led by HSBC, intending to take over two-thirds of the project's HKD 10.2 billion debt.
Ares Management $ARES Management LP(ARES.US) is a globally leading alternative investment management firm with investments spanning credit, private equity, real estate, infrastructure, and other major alternative asset classes. As of December 31, 2023, Ares managed a staggering USD 419 billion globally, with a market capitalization exceeding USD 40 billion. Recently, Ares also participated in the latest HKD 60 billion financing completed by Wanda Commercial Management.
This is not the first time THE CORNICHE has faced a "barbarian" knocking at its door. Last year, CK Asset Holdings, under Li Ka-shing, had launched a takeover offer for the majority of the project's debt, but the deal ultimately fell through.
For Logan Group and KWG Group, if the debt changes hands, they would not only lose nearly HKD 30 billion in sales revenue from the project but also potentially disrupt their debt restructuring process.
New Buyer Emerges for HKD 10.2 Billion Loan
The focus of the event lies in the HKD 10.2 billion loan provided by the banking consortium of "HSBC + Standard Chartered + ICBC (Asia)".
This requires revisiting the background of the loan: In 2017, Logan Group and KWG Group jointly outbid 13 developers, including CK Asset, with a record-breaking HKD 16.9 billion to secure a residential site on Nam Fung Road, Ap Lei Chau, in Hong Kong's Southern District. They developed THE CORNICHE on this site, positioning it as a luxury hillside seafront residence. "Corniche" means "a coastal road along a cliff," often used in the naming of luxury projects, reflecting the two companies' high regard for the project.
Later, in 2019, Logan Group and KWG Group mortgaged THE CORNICHE project to secure a HKD 10.2 billion loan from the HSBC-led consortium for project development.
It is understood that the loan was raised by Qiwan (Hong Kong) Investment Limited, a 50-50 joint venture between Logan Group and KWG Group, consisting of a HKD 6.72 billion term loan and a HKD 3.855 billion revolving credit facility. Disbursed starting in 2019 with a five-year term, it is set to mature on August 25 this year.
However, since 2022, Logan Group and KWG Group have successively defaulted on their debts, and the HKD 10.2 billion mortgage loan was included in the offshore debt restructuring of the two companies.
With both developers facing repayment risks, the creditor consortium led by HSBC faces two choices: trust the developers to sell and repay the debt or opt for early cash-out. Clearly, the consortium chose the latter.
This is not hard to understand. The project began construction in 2018 and was only officially launched in January 2023. As is well known, the property market was in a downturn at the time, and THE CORNICHE's offerings were all "thousand-square-foot mansions," with each unit priced at over HKD 100 million.
It is understood that THE CORNICHE project comprises six residential towers with only 295 units for sale, ranging from approximately 1,340 to 9,663 square feet (about 124-898 square meters). The main unit types are three-bedroom and four-bedroom, with additional features such as duplex penthouses, large flats, and terrace gardens.
With China's economic growth slowing, fewer wealthy Chinese buyers are willing to make purchases. Public records show that since 2023, only five units in the project have been sold. The sluggish sales naturally eroded the consortium's confidence in the two developers' ability to repay.
As the project's primary decision-maker and creditor, the consortium actively sought interested buyers. In mid-2023, the first potential buyer emerged—CK Asset Holdings proactively proposed acquiring a majority stake in the loan to the consortium.
The proposed acquisition was quickly met with joint opposition from Logan Group and KWG Group, who publicly accused CK of "profiteering from others' misfortune" and attempted to block the deal.
Who Calls the Shots on the Project?
Logan Group and KWG Group's opposition was straightforward.
At the time, Logan Group was in critical negotiations with creditors for debt restructuring and intended to add about 15 projects, including THE CORNICHE, as collateral for restructuring funds. If the project's debt changed hands, it would introduce significant uncertainty into the negotiations.
Analysts noted that while the consortium could sell to whomever it wanted, Logan Group and KWG Group's plan to use the project as collateral would require CK Asset's approval if it took over, potentially leading to the loss of a high-quality asset.
Worse, if the two developers failed to repay, creditors could seize the collateral, develop and sell it, and return any remaining balance to Logan Group and KWG Group. This would mean the two developers would not only lose a project capable of long-term sales appreciation and "blood-making" but also potentially lose the HKD 6.6 billion spent on acquiring the land.
It is worth noting that THE CORNICHE is valued at HKD 30 billion. Losing it would significantly weaken the two companies' underlying asset scale and even create deeper pressure on delivery commitments.
In the end, as Logan Group and KWG Group hoped, the deal fell through—but not because of their opposition.
According to insiders, the breakdown was due to CK Asset demanding a higher discount than expected, and only a few banks in the consortium, such as HSBC, were willing to sell the project at the time, with most others having no plans to do so.
However, as time passed, the two companies' debt restructuring made little progress, and sales showed no signs of improvement, let alone generating repayment funds. These factors only strengthened the consortium's resolve to sell the project.
Insiders revealed that in the initial proposal, Ares offered 95 cents per share for the consortium loan, though the terms were not finalized. They added that the banks had held meetings to discuss the potential deal, which could take months to complete.
Perhaps realizing the futility of resistance and with the loan nearing maturity, the two companies seem to have abandoned their last hope of survival—at least, no public resistance has been seen so far.
As for Ares Management, if the deal goes through, it could leverage just HKD 6 billion to control a project worth HKD 30 billion—a highly "valuable" transaction, especially amid Hong Kong's recovering property market.
According to Midland Realty data, since the withdrawal of cooling measures in late February, Hong Kong's property market has reversed its downturn, releasing pent-up demand and driving a sharp rise in primary and secondary transactions.
For primary homes, new projects were launched at attractive prices, and leftover inventory sold quickly, pushing March's primary transactions to a record high. In March, primary transactions in Hong Kong totaled about 4,156 units, a 14.5-fold increase from February's 268 units, marking the highest level since the implementation of the Residential Properties (First-hand Sales) Ordinance in 2013.
Recently, CK Asset and MTR Corporation's Blue Coast Phase 3B at Wong Chuk Hang Station's South Island Line officially launched, selling 96% of units and generating nearly HKD 7.5 billion in revenue, with nearly 30% of buyers from mainland China. This has somewhat created a favorable timing for THE CORNICHE's sales.
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