Vietnamese conglomerate Vingroup is under increasing pressure due to its financial support for loss-making electric vehicle manufacturer VinFast, as foreign investors reduce holdings and borrowing costs rise.
Vingroup’s market capitalization has nearly halved to approximately $6 billion since VinFast’s Nasdaq listing in August 2023. Over the past year, its shares fell 6.6%, underperforming the Vietnam market index (.VNI), which gained 7.5% during the same period, according to LSEG data. Shares reached their lowest level since 2017 in December before recovering slightly.
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This month, Moody’s and Fitch assigned speculative-grade ratings to the $500 million international bond sale by Vinhomes, Vingroup’s most profitable unit, citing its financial ties to the parent company. Fitch warned that Vingroup’s rising investments in VinFast, coupled with operating cash burn, could push its debt levels close to risk thresholds.
The conglomerate and its founder, Pham Nhat Vuong, have invested $13.5 billion in VinFast as of October 2023, with an additional $3.5 billion pledged in November. VinFast posted nearly $2 billion in losses for the first three quarters of 2023 but narrowed losses as revenue grew, driven by increased car sales that exceeded a revised-down target.
See also: VinFast Secures $3.35 Billion in Funding from Founder and Vingroup for Global Expansion
While Vingroup reported rising revenue and profits in the first nine months of 2023, boosted by asset sales, borrowing costs climbed significantly. Bonds issued in May carried a 12.5% interest rate, compared to averages of 10.6% in 2023 and 9.6% in 2022.
Moody’s and Fitch highlighted Vinhomes’ credit risks, citing its reliance on the parent company. Fitch estimated Vingroup’s consolidated net debt-to-property asset ratio could exceed 55% in the short term, with sustained levels above 60% potentially leading to further downgrades.
Foreign investors have been selling Vingroup shares at an accelerated pace, reducing their combined holdings by nearly 60% to 15.7 trillion dong ($620.5 million) since VinFast’s public listing. BlackRock and DWS fully exited their investments last year, while JPMorgan’s asset management unit halved its stake.
See also: Vietnam’s VinFast Enters India with Premium Electric SUVs to Challenge Mahindra and BYD
SK Group, Vingroup’s largest foreign investor, plans to divest one-fifth of its 6% holding by mid-February, possibly signaling broader plans to reduce exposure in Southeast Asia.
Despite the challenges, Vingroup reaffirmed its commitment to VinFast, stating it would continue to support the subsidiary’s development. The conglomerate expects growth across its business units this year to attract additional investment.
“Vingroup may face further financial erosion if VinFast’s performance does not improve,” said Leif Schneider, head of international law firm Luther in Vietnam. Nguyen The Minh, head of research at Yuanta Securities Vietnam, echoed similar concerns, describing VinFast as Vingroup’s “biggest challenge.”
Source: Reuters