By Clare Jim

HONG KONG, Feb 28 (Reuters) - Hong Kong's New World Development 0017.HK, which has been battling liquidity stress for the past three years, is set to report an interim net loss of up to $875 million on Friday, hurt by a prolonged property downturn and high interest costs.

Investors are watching to see whether the deepening debt woes of New World, one of the biggest property developers in Hong Kong, could spiral into a sector crisis reminiscent of the one in mainland China that started in 2021 and led to scores of company defaults there.

They also want an update from new CEO Echo Huang on the firm's progress in its plans for deleveraging, debt repayment and asset disposal.

New World has undergone two CEO changes in two months, with Adrian Cheng, the third-generation scion of the firm's founding family, stepping down in September, raising concerns over its corporate governance.

The estimated net loss for the first half ended in December, which counts only continuing operations, was flagged by the firm last week and is driven by impairment and fair-value losses.

That compares to a HK$502 million ($64.57 million) net profit a year ago and follows a record HK$11.8 billion net loss for the full 2023/2024 financial year.

Hong Kong developers enjoyed decades of growth until the property market, a key pillar of the economy, stumbled from one crisis to another, including anti-government protests in 2019, COVID-19 and a slow economic recovery.

New World's market value has shrivelled to about $1.5 billion now from $14 billion in mid-2019.

It is also suffering from a hike in interest rates more than its peers because it has among the highest net gearing in the sector, at 85%, due to its rapid expansion in both Hong Kong and mainland China before the pandemic.

The developer had a total of HK$151.6 billion of loans and bonds outstanding as of end-June, with HK$41.6 billion of the debt due by June this year, while its cash level was only at HK$28 billion. It also had HK$36.3 billion of perpetual bonds, which typically pay more expensive rates.

Its 6.25% perpetual bond has a $40.6 million coupon payment due on March 7, and the $345 million, 6.15% notes will have their coupon reset to around 10.5% if New World does not redeem the securities by June 16 this year.

($1 = 7.7737 Hong Kong dollars)

(Reporting by Clare Jim; Editing by Anne Marie Roantree and Muralikumar Anantharaman)

((clare.jim@thomsonreuters.com;))