NewWorld Development Company Limited
RISK FACTORS
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B. RISK RELATING TO FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
8. The Group maintains a certain level of indebtedness to finance its operation. The Group’s indebtedness could
have an adverse effect on it, for example, by:
I. requiring the Group to maintain certain financial ratios;
II. requiring the Group to dedicate a large portion of its cash flow to repay interest and debt, thereby
reducing the availability of its cash flow to expand its business;
III. increasing the Group’s vulnerability to adverse economic or industry conditions;
IV. limiting the Group’s flexibility in planning or responding to the changes in its business or the industry in
which it operates;
V. limiting the Group’s ability to raise additional debt or equity capital in the future of increasing the cost of
such funding;
VI. restricting the Group from making strategic acquisitions or taking advantage of business opportunities;
VII. increasing the difficulty of the Group to meet its obligations in relation to its debt; and
VIII. increasing the cost of borrowings of the Group.
The Group is principally engaged in property development business. As such business operation requires
substantial capital input, the Group will still need to obtain financing from financial institutions. When the credit
market contracts or tightens, the Group cannot assure that there will be sufficient borrowings or that it can
refinance, in which case its business development will be adversely affected to a certain extent.
In the future, the Group may from time to time incur other substantial indebtedness, intensifying the risks
induced by its indebtedness. The Group’s ability to generate sufficient cash to satisfy its outstanding and
future debt obligations will depend on the Group’s operating performance in future, which will be affected by,
among other things, the prevailing economic conditions, governmental regulations, the demand for properties
in the region where the Group’s business operates and other factors, many of which are beyond the Group’s
control. The Group may not generate sufficient cash flow to pay its anticipated operating expenses and to
service its debts. In this case, the Group will have to adopt an alternative strategy that may include actions
such as reducing or delaying capital expenditures, disposing of the Group’s assets, restructuring or refinancing,
or seeking equity capital. These strategies may not be implemented on satisfactory terms, or at all. Even they
are implemented, they may result in an adverse effect on the Group’s businesses, financial conditions and
results of operations. In addition, if the Group fails to fulfill its payment obligations, comply with any actual
covenants or required financial ratios, or breach any restrictive covenants, it may result in a default under the
terms of such borrowing. If an event of default occurs, the loan borrower is entitled to request the Group to
repay in full or part of its outstanding indebtedness on an accelerated basis.
