Shares of Hong Kong’s major property developer New World Development surged by 23% after the unexpected resignation of CEO Adrian Cheng, a prominent figure from the company’s founding family.
The Hong Kong-listed company saw its stock price jump when trading resumed on Friday, after being temporarily halted for a major announcement regarding Cheng’s departure, CNBC reported.
In a statement, New World Development announced that Cheng, grandson of the company’s founder, is stepping down to focus on “public service and personal commitments.”
His resignation marks a significant shift in leadership, as Chief Operating Officer Eric Ma Siu-Cheung was named the new CEO.
Ma’s appointment is notable, as it marks the rare occasion when an outsider has taken the reins of a family-run business in Hong Kong.
Financial struggles amid property market downturn
New World Development has faced significant financial challenges in recent months, with the company reporting projected losses of between HKD 19 billion ($2.4 billion) and HKD 20 billion ($2.6 billion) for the fiscal year ending in June.
These losses are attributed to a combination of declining property sales, investment losses, and substantial impairment charges.
The property developer, like many in the region, is grappling with the continued slowdown in Hong Kong’s real estate sector and broader financial difficulties in mainland China.
With debt levels mounting, New World Development’s financial outlook has been weighed down by the same macroeconomic headwinds affecting the entire region’s property market.
Focus on corporate governance
The decision to appoint Ma Siu-Cheung as CEO is seen as a shift toward better corporate governance, an issue that has gained increasing importance in Asia.
Alicia Garcia-Herrero, chief economist for Asia Pacific at investment bank Natixis, remarked that the move away from traditional family succession signals a potential new direction for Hong Kong’s corporate elite.
“This shows that corporate governance is crucial. Family-run firms with preferred heirs can struggle in challenging markets. It’s a tough environment, and only the best management can thrive,” Garcia-Herrero told CNBC.
Stimulus measures boost investor confidence
The surge in New World Development’s stock price also coincides with a broader rally in Hong Kong and Chinese equities, spurred by recent stimulus measures from China’s central bank.
Investors have reacted positively to Beijing’s efforts to stabilize the economy, including fiscal and monetary policy support aimed at halting the real estate market’s continued decline.
On Thursday, China’s top leaders declared their intention to curb the property market downturn, further buoying investor sentiment.
The combination of leadership changes and China’s economic stimulus has created a wave of optimism for the embattled developer, signaling that the company’s fortunes could improve in the wake of these major shifts.
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