Written by Francesco Guarascio and Phuong Nguyen
HANOI (Reuters) – Vietnam's Vingroup faces renewed scrutiny over its strategy to prop up loss-making electric car maker VinFast (NASDAQ:), with its shares approaching multi-year lows as foreign investors sell off and borrowing costs rise.
Pressure on the company, a household name in Vietnam with businesses including automobiles, real estate, retail and resorts, intensified this month as Moody's (NYSE:) and Fitch gave “junk” ratings to the debt of Vingroup's most profitable unit, the real estate company. Vinhomes (HM:), in addition to a planned Eurobond sale worth $500 million.
The speculative-grade ratings were due to Vinhomes' links to Vingroup, the two agencies said.
This year “may become an indicator of Vingroup's broader financial health,” said Leif Schneider, head of international law firm Luther in Vietnam.
“Vingroup may face further financial erosion” if VinFast's performance does not improve, he said, adding that reducing Vingroup's support for subsidiaries could ease financial pressures.
The group and its founder, Pham Nhat Phung, had pumped $13.5 billion into the electric car maker as of October in loans and grants, and promised nearly $3.5 billion more in November, despite concerns about the bet raised by investors at the last two annual shareholder meetings. In the company. .
Vingroup's market capitalization has shrunk by nearly half to about $6 billion since VinFast listed in August 2023. Over the past year, its shares have fallen 6.6%, the largest among Vietnam's 10 largest listed companies, and have underperformed a 7.5% rise. In Vietnam. Market, according to LSEG data.
Its shares traded in December at their lowest level since 2017. They have recovered slightly since then but are still close to a multi-year low this week.
“The biggest challenge facing Vingroup remains VinFast,” said Nguyen Thi Minh, head of research at Yuanta Securities Vietnam.
However, Vingroup is not backing down.
“Vingroup has been and will continue to support the development of the subsidiary,” she told Reuters on Wednesday, underscoring its long-term commitment to Nasdaq-listed VinFast.
Vingroup said the expected strong growth of its units this year will attract investment in the company.
Borrowing costs
So far, investors, especially from abroad, are not convinced. Since VinFast's listing, the value of foreigners' combined holdings in Vingroup has fallen nearly 60% to 15.7 trillion dong ($620.5 million), faster than domestic investors, according to stock market data updated up to last week.
Among the foreigners to fully offload their holdings in the group last year are the investment vehicles of BlackRock (NYSE:) and DWS, while JPMorgan's asset management unit almost halved its stake to 0.13%, according to LSEG data.
The largest foreign investor in Vingroup, South Korea's SK Group, plans to sell about a fifth of its 6% stake by mid-February as part of a broader divestment plan in Southeast Asia.
Net foreign sales were a broader trend in Vietnam and Southeast Asia, largely driven by higher interest rates in the United States, Vingroup said.
VinFast lost nearly $2 billion in the first three quarters of last year, according to the latest data, but pared its losses as revenue grew thanks to car sales that exceeded its revised target last year.
Vingroup's revenues and profits rose in the first nine months of last year compared to the same period in 2023, driven by asset sales.
However, Vingroup's borrowing costs are steadily rising. In May, it issued two-year bonds that paid 12.5% interest, above the average of 10.6% in 2023 and 9.6% in 2022 for slightly longer maturities.
Vingroup is not rated, but Fitch estimated earlier in January that its debt was expected to be close to risk levels for Vinhomes' ratings “due to higher investments in the group's automaker, and our expectations of sustainable operating cash burn.”
“Vingroup's consolidated net debt/net real estate assets are expected to exceed 55% in the short term,” Fitch said, noting that if it exceeds 60% on a sustainable basis, it could lead to a downgrade of Vinhomes' current rating. Which makes its debt more expensive.
Vingroup said its debt remained at stable levels.
Vietnam's Techcombank, one of Vingroup's largest creditors, did not respond to a request for comment.
Despite having low, manageable debt, “Vinhomes' credit quality is constrained by growth ambitions and links to parent company Vingroup,” Moody's said.
