Francesco Guarascio and Phuong Nguyen report from Hanoi that Vingroup, a major Vietnamese conglomerate, finds itself under intensified scrutiny due to its support for the financially struggling electric vehicle maker, VinFast. This scrutiny arrives at a time when Vingroup’s share prices are teetering at multi-year lows amidst foreign investors divesting and rising borrowing costs.
The pressure cooker situation increased this month when credit rating agencies Moody’s and Fitch branded the debt of Vingroup’s profitable segment, the real estate firm Vinhomes, as ‘junk’. This rating included their planned $500 million international bond issuance. Both agencies pointed out that these ratings are influenced by Vinhomes’ connection with Vingroup.
“This year could be a reflection of Vingroup’s overall financial wellbeing,” commented Leif Schneider, head of international law firm Luther in Vietnam. He forewarned that if VinFast does not enhance its performance, Vingroup might encounter more financial difficulties. Schneider suggested that reducing financial support to its subsidiaries might help alleviate the company’s fiscal stress.
With a hefty investment of $13.5 billion into its vehicle manufacturing arm, VinFast, as of October, Vingroup and its founder Pham Nhat Vuong aren’t backing down. Additionally, they pledged nearly $3.5 billion more in November, despite skeptical voices from investors during the last couple of annual shareholder meetings.
Vingroup’s market capitalization, as of now, has seen a jaw-dropping shrinkage by nearly half to approximately $6 billion since VinFast’s listing in August 2023. Within the last year, Vingroup’s share prices dipped by 6.6%, one of the steepest declines among the top 10 listed firms in Vietnam, starkly contrasting with the market’s 7.5% growth, according to LSEG data.
Trading in December saw Vingroup’s shares hit their lowest point since 2017, with only a slight recovery thereafter, still hovering around those lows this week.
“The main concern for Vingroup remains VinFast,” expressed Nguyen The Minh, head of research at Yuanta Securities Vietnam. Yet, Vingroup is resolute in its path. The company affirmed to Reuters on Wednesday that they will persist in supporting VinFast, holding firm to their commitment to the Nasdaq-listed entity.
Vingroup is optimistic that the anticipated robust growth in its units this year will attract further investments.
However, investors, particularly from abroad, remain unmoved. Since VinFast stepped into the stock market arena, the combined holdings of foreign investors in Vingroup have plummeted by nearly 60% to 15.7 trillion dong ($620.5 million), a higher rate than that among local investors, as per stock market data updated last week.
Among those who have completely exited their stakes are investment outfits like BlackRock and DWS. Meanwhile, JPMorgan’s asset management arm cut its holdings down to 0.13%, according to LSEG data. Vingroup’s largest foreign stakeholder, South Korea’s SK Group, intends to offload about a fifth of its 6% stake by mid-February, a move that may be part of a more extensive divestment strategy across Southeast Asia.
Vingroup attributes the net selling by foreign investors to a prevailing trend in Vietnam and Southeast Asia, largely spurred by the lofty interest rates in the United States.
VinFast has incurred close to a $2 billion loss in the initial three quarters of last year. However, they’re working on narrowing these losses as revenue improves, surpassing their adjusted sales targets thanks to increased car sales.
For Vingroup, both revenue and profits have been on the upswing in the first nine months of last year compared to the same period in 2023, driven by asset sales. However, its borrowing costs are steadily climbing. In May, they issued two-year bonds with an interest rate of 12.5%, surpassing the 10.6% average in 2023 and 9.6% in 2022 for slightly longer durations.
Though Vingroup itself isn’t rated, Fitch assessed earlier in January that its debt could be nearing risk levels akin to Vinhomes’ ratings due to heightened investments in the automaker and expectations of continued cash burn from operations.
Fitch also noted that the consolidated net debt/net property assets at Vingroup is anticipated to climb above 55% shortly. If this figure surpasses 60% consistently, it could trigger a downgrade of Vinhomes’ current rating, making debt more expensive.
Vingroup maintains that its debt levels remain stable. But concerns over Vinhomes’ credit quality stem not from its healthy debt, but from its ambitious growth plans and ties to Vingroup, explained Moody’s.
Despite reaching out, Vietnamese lender Techcombank, one of Vingroup’s significant creditors, did not respond to a request for comment.
Reporting contributed by Francesco Guarascio and Phuong Nguyen, with editing by Muralikumar Anantharaman.
