Luk Fook, a Hong Kong-funded real estate enterprise with a scale of tens of billions, announced an official default.
The once-stable Hong Kong property developers have reached their most perilous moment.
Hong Kong-funded property developer Road King Infrastructure announced in February this year that it would delay the payment of the interest on its US$300 million perpetual bonds. Recently, it again negotiated with creditors regarding a US dollar note due in July 2029, applying to pay interest in kind instead of in cash. However, this was opposed by a creditor group represented by PJT Partners and Latham & Watkins, which holds 25% of the veto rights. By the deadline, Road King failed to pay the interest on schedule.
On August 14, Road King issued a notice stating, "The Group has decided to suspend the payment of all principal and interest due on all of the Group's offshore bank debts, notes, and perpetual securities." This means that Road King has officially joined the ranks of defaulting property developers.
After the stock market opened on August 14, Road King's share price tumbled by more than 10%.
Image source: Xueqiu
According to Road King's notice, the interest payment for the above-mentioned US dollar note was due on July 12, 2025. According to the terms and conditions of the note, there is a 30-day grace period for interest payment, which means Road King should have paid the interest by August 12.
On June 20, Road King began the consent solicitation process for paying interest on the notes in kind instead of in cash. According to Road King's notice, in addition to the above-mentioned US dollar note, four other US dollar notes are also undergoing the voting process for term revisions and waivers simultaneously.
The above five US dollar notes are as follows: a US dollar note with a 5.2% interest rate due in July 2029; a US dollar note with a 6.7% interest rate due in March 2028; a US dollar note with a 5.9% interest rate due in September 2028; a US dollar note with a 6.0% interest rate due in March 2029; and a US dollar note with a 5.125% interest rate due in January 2030.
According to public information, Road King's offshore debts (including bank debts and notes) amount to approximately US$1.51 billion, and there are also US$890.5 million in perpetual securities. In total, nearly US$2.4 billion in debts have all had their interest payments suspended, with the total annual interest payable exceeding RMB 900 million.
Industry insiders speculate that the reason for the creditor group's opposition is that they believe Road King has the funds to pay the interest. The company still has a large number of high-quality assets, and its solvency has not substantially collapsed.
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The "stability" of Hong Kong-funded property developers is mainly reflected in their vigilance against high leverage and their preference for business layouts such as holding assets that generate continuous cash flow.
Road King Group is well-known for acting as the "white knight" for Sun Hongbin when his Sunco failed. It has three core businesses: real estate development, toll roads, and industries. Among them, real estate and toll roads contribute the majority of sales and cash flow.
Revenue data of Road King Group's core businesses
The toll road business is one of Road King's core businesses and the main source of continuous cash flow. According to Road King's disclosed performance reports, from 2020 to 2024, Road King's toll roads contributed HK$2.725 billion, HK$3.779 billion, HK$3.716 billion, HK$3.906 billion, and HK$2.44 billion in revenue respectively.
Since the real estate development industry entered a downward cycle after 2020, Road King Group's performance has gradually declined. The operating revenue data from 2020 to 2024 were: HK$24.678 billion, HK$17.156 billion, HK$13.075 billion, HK$5.537 billion, a cumulative decline of more than 77.5% in revenue.
As the "foundation" for providing stable cash flow, the proportion of the toll road business has been continuously increasing. From 2021 to 2024, the corresponding revenue proportions were: 11.26%, 15.31%, 21.66%, 29.87%, and 44.07% respectively.
After 2022, the revenue contributed by the toll road business has exceeded the net cash flow generated from operating activities in that year.
However, as the company's operating conditions continued to deteriorate, Road King faced high debt pressure and had to sell its toll road rights to reduce debt.
In November 2023, Road King sold the toll collection businesses of four inland expressways in the Chinese mainland, raising funds of RMB 4.412 billion. In April 2024, Road King sold the toll collection rights of the last expressway in the Chinese mainland. Since then, Road King has only four expressways in Indonesia left.
On the surface, after selling its assets, Road King's total liabilities have significantly decreased. In 2024, it repaid loans equivalent to HK$6.803 billion in total, and the net equity-to-debt ratio dropped to 55%. The strategy of "reducing debt to strengthen the foundation and moving forward lightly" has achieved some results.
However, in reality, Road King's cash flow situation has not improved. The financial report data shows that in 2024, Road King had a post-tax loss of HK$3.308 billion, and the loss attributable to shareholders was HK$4.122 billion. The loss amount was almost equivalent to the cash amount it held at the end of the period (HK$4.274 billion).
In 2025, Road King needs to repay HK$2.912 billion in debts. From 2027 onwards, it needs to repay another HK$8.28 billion within three years. However, Road King's financing channels have shrunk across the board. From 2021 to 2024, new loans decreased from HK$19.87 billion to HK$1.202 billion, and the net cash flow generated from financing activities increased from -HK$2.305 billion to -HK$7.994 billion. The gap is getting larger and larger, blocking Road King's path of "borrowing new to repay old."
Debt situation of Road King Group as of the end of 2024
To relieve the tight cash flow pressure and debt problems, Road King is on the one hand promoting debt extensions, postponing short-term debts to gain time and space; on the other hand, it is selling the toll collection rights of inland expressways to reduce the debt scale.
However, the accelerating decline in performance has always made it difficult for Road King to relieve its debt pressure. Public data shows that in 2024, Road King Group's property sales were RMB 12.462 billion, a decrease of approximately 55% compared to 2023. In the first half of 2025, Road King's sales decreased by another 28.37% to RMB 5.232 billion. The cash flow generated from operating activities is no longer sufficient to solve the debt problems it faces.
Therefore, after successfully completing the debt extension, Road King still decided to take the risk of default to relieve the interest payment pressure. In February 2025, Road King decided to stop the distribution of perpetual securities, defaulting at the perpetual bond level. It also stated that "unless we can gradually repay our debts in the next few years, we will not be able to start repaying the unpaid distributions on the perpetual securities until all debts are fully settled."
Since June, Road King has been seeking to distribute the interest on its US dollar bonds in kind instead of in cash. However, it has not been successful.
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According to industry insiders' analysis, the fundamental reason why Road King's in-kind interest payment method was not recognized by creditors is that there is a difference in judgment between the two sides regarding Road King's solvency. Some creditors believe that the core assets such as the toll collection rights of the Indonesian roads held by Road King are valued at over US$5 billion, which is sufficient to cover its debts. And Shan Weibiao's statement that "debt reduction is the top priority" is considered a plan that may sacrifice the interests of small creditors.
The four Indonesian roads with toll collection rights held by Road King are the SN Expressway, the MKTT Expressway, the NKK Expressway, and the SB Expressway, with a total mileage of approximately 335 kilometers. These are also the last high-quality and stable assets that Road King currently has.
In 2024, the toll revenue from the above four Indonesian expressway projects was RMB 1.765 billion, accounting for approximately one-third of the company's total revenue. Moreover, they can provide stable cash flow and profits, which are extremely important for Road King's later debt reduction work.
According to the news released by Road King, in the second half of 2025, the toll rates of two expressways in Indonesia will be significantly increased again. It is expected that the toll revenue and dividend contributions after 2025 will both increase.
Therefore, Road King will not easily sell its "ballast stone" at a discount. Instead, it chose to officially default on its public bonds.
While issuing the default notice, Road King stated that it would start to promote debt restructuring. "We do not intend to redeem and/or repurchase any notes or perpetual securities in accordance with the mandatory repurchase or redemption commitments related to the designated assets. Instead, a portion of the proceeds from selling the designated assets will be used for comprehensive restructuring, including paying the restructuring fees."
As of the end of 2024, Road King's total loan amount was HK$16.227 billion. The cash flow generated from normal business operations is no longer sufficient to repay the loans. Therefore, it must either carry out debt restructuring or sell its high-quality assets to reduce the debt.
Shan Weibiao, Chairman of Road King Group
At the end of 2024, Shan Weibiao, the chairman of Road King Group, wrote in the company's New Year's speech: In the next three years of Road King's journey, the debts remain, and the pressure does not ease. We must steer the ship well and sail it steadily to completely solve the debt problem. Only by ensuring that the enterprise does not sink in the storm can we talk about moving forward lightly after the storm.
However, unexpectedly, Road King did not choose to hold on until the end. Instead, when the outside world thought it still had the ability to pay interest, it defaulted in advance and initiated debt restructuring.
At the beginning of 2024, Shan Weibiao, the chairman of Road King Group, predicted that the real estate industry would bottom out by the end of 2024 and gradually improve in 2025. Obviously, the situation is more difficult than he expected.
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In addition to Road King Group, other Hong Kong-funded property developers are also having a tough time.
Recently, New World Development issued a notice stating that the four perpetual bonds issued by its subsidiary will have their interest payments delayed, involving an amount of up to US$3.4 billion. This is the first time that New World has faced debt risks since its listing. Although the delayed payment of perpetual bond interest does not count as a direct default, this move raises questions about its subsequent debt problems.
The Hong Kong property developers, which have always been known for their stability and have experienced cyclical troughs, are showing signs of the first batch of concentrated defaults.
Some Hong Kong-funded property developers that are still operating normally are experiencing a performance slump. For example, the mid-year performance data for 2025 released by Swire Properties shows that the company reported a loss attributable to shareholders of HK$1.202 billion. This is also the first time since 2010 that Swire Properties' mid-year profit attributable to shareholders has turned into a loss.
Wharf Real Estate Investment continued to report losses in the first half of 2025, and the loss amount widened to HK$2.406 billion. Shui On Land only has RMB 2.871 billion in non-restricted cash, which is no longer sufficient to cover the RMB 8.264 billion in debts due within the year.
The decline in profitability and the increasing difficulty in liquidity management are the beginnings of a company entering a risk period. However, from another perspective, the default of Hong Kong-funded property developers may indicate that the clearance of excess production capacity in the real estate industry is about to enter the final countdown stage, and the real estate industry is approaching a true bottoming-out period.