EV maker VinFast’s losses heap pressure on parent Vingroup as foreign investors sell

By Francesco Guarascio and Phuong Nguyen

HANOI (Reuters) – Vietnamese conglomerate Vingroup is facing fresh scrutiny over its strategy to support loss-making electric vehicle maker VinFast, with its shares near multi-year lows as foreign investors sell and its borrowing costs increase.

Pressure on the company, a household name in Vietnam with businesses spanning automobiles, real estate, retail and resorts, has intensified this month as Moody’s and Fitch also assigned a “junk” rating to the debt of Vingroup’s most profitable unit, real estate company Vinhomes. regarding its planned $500 million sale of international bonds.

Both agencies said the speculative ratings were due to Vinhomes’ ties to Vingroup.

This year “could become an indicator of Vingroup’s overall financial health,” said Leif Schneider, director of international law firm Luther in Vietnam.

“Vingroup could face further financial erosion” if VinFast’s performance does not improve, he said, adding that Vingroup’s reduction in support for subsidiaries could ease financial stress.

The conglomerate and its founder, Pham Nhat Vuong, invested $13.5 billion in the electric automaker in October in loans and grants, and pledged nearly $3.5 billion more in November, despite concerns raised by investors at the company’s last two annual shareholder meetings. .

Vingroup’s market capitalization has nearly halved to around $6 billion since VinFast listed in August 2023. Over the past year, its shares have fallen 6.6%, the steepest among 10 largest listed companies in Vietnam, and underperforming Vietnam’s 7.5% rise. market, according to LSEG data.

Its shares traded in December at their lowest level since 2017. They have recovered slightly since then but were still close to that multi-year low this week.

“The biggest challenge for Vingroup remains VinFast,” said Nguyen The Minh, head of research at Yuanta Securities Vietnam.

However, Vingroup is not backing down.

“Vingroup has supported and will continue to support the development of the subsidiary,” he told Reuters on Wednesday, reiterating his long-standing commitment to Nasdaq-listed VinFast.

The expected strong growth of its units this year would attract investment into the company, Vingroup said.

BORROWING COSTS

So far, investors, particularly foreign ones, have not been convinced. Since VinFast’s listing, the value of foreigners’ combined stakes in Vingroup has fallen nearly 60 percent to 15.7 trillion dong ($620.5 million), faster than that of local investors, stock market data shows updated last week.

Foreigners who have fully divested their stakes in the conglomerate last year include investment vehicles BlackRock and DWS, while JPMorgan’s asset management unit almost halved its stake to 0.13% , according to LSEG data.

Vingroup’s largest foreign investor, South Korean conglomerate SK Group, plans to sell about a fifth of its 6 percent stake by mid-February as part of a possibly broader divestment plan in South Asia. Southeast.

Vingroup said foreign net sales were a broader trend in Vietnam and Southeast Asia, largely driven by high interest rates in the United States.

VinFast lost nearly $2 billion in the first three quarters of last year, according to the latest data, but pared its losses as revenue rose as car sales exceeded its downwardly revised target last year.

Vingroup’s revenue and profit rose in the first nine months of last year compared to the same period of 2023, thanks to asset sales.

However, Vingroup’s borrowing costs are steadily increasing. In May, it issued two-year bonds paying interest of 12.5%, above the average of 10.6% in 2023 and 9.6% in 2022 for slightly longer maturities.

Vingroup is unrated, but Fitch estimated earlier in January that its debt is expected to be near risk levels for Vinhomes’ ratings “due to increased investment in the group’s automaker and our expectations of ‘sustained consumption of operating cash’.

“Vingroup’s consolidated net debt/net real estate assets are expected to be above 55% in the near term,” Fitch said, noting that if it exceeds 60% sustainably, it could lead to a downgrade of Vinhomes’ current rating. , making its debt more expensive.

Vingroup said its debt remained at stable levels.

Vietnamese lender Techcombank, which is one of Vingroup’s main creditors, did not respond to a request for comment.

Despite low and manageable debt, Vinhomes’ “credit quality is constrained by its growth ambitions and its ties to its parent company, Vingroup,” Moody’s said.

(Reporting by Francesco Guarascio and Phuong Nguyen; editing by Muralikumar Anantharaman)