Bonds & Fixed Income

EV maker VinFast’s losses heap pressure on parent | Finance news

January 23, 2025

EV maker VinFast's losses heap pressure on parent

EV maker VinFast’s losses heap strain on mother or father | finance news

By Francesco Guarascio and Phuong Nguyen

HANOI (Reuters) – Vietnamese conglomerate Vingroup is dealing with renewed scrutiny on its strategy of backing loss-making electric vehicle maker VinFast, with its shares close to multi-year lows as international traders promote and its borrowing prices rise.

Strain on the company, a family title in Vietnam with companies spanning autos, real estate, retail and resorts, intensified this month as Moody’s and Fitch gave ‘junk’ rankings to the debt of Vingroup’s most profitable unit, real estate firm Vinhomes, in addition to to its deliberate $500 million worldwide bond sale.

The 2 businesses stated the speculative-grade rankings have been attributable to Vinhomes’ hyperlinks to Vingroup.

This yr “may become indicative of Vingroup’s broader financial health,” stated Leif Schneider, head of worldwide law firm Luther in Vietnam.

“Vingroup may face further financial erosion” if VinFast’s efficiency doesn’t improve, he stated, including that scaling back Vingroup’s assist to subsidiaries might mitigate financial pressure.

The conglomerate and its founder, Pham Nhat Vuong, poured $13.5 billion into the electric automaker as of October in loans and grants, and promised one other practically $3.5 billion in November, regardless of issues in regards to the wager traders raised on the company’s final two annual shareholders’ conferences.

Vingroup’s market capitalisation has shrunk by practically half to about $6 billion since VinFast’s itemizing in August 2023. Over the previous yr, its shares fell 6.6%, essentially the most among the many 10 largest listed corporations in Vietnam, and underperforming the 7.5% rise for the Vietnam market, in keeping with LSEG knowledge.

Its shares traded in December at their lowest stage since 2017. They’ve recovered barely since however have been nonetheless close to that multi-year low stage this week.

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

Vingroup, nonetheless, is just not backing off.

“Vingroup has been and will continue to support the subsidiary’s development,” it instructed Reuters on Wednesday, reiterating its long-standing dedication to Nasdaq-listed VinFast.

Sturdy anticipated growth for its items this yr would entice investment within the company, Vingroup stated.

BORROWING COSTS

Up to now, traders, particularly from abroad, have been unconvinced. Since VinFast’s itemizing, the worth of foreigners’ mixed holdings in Vingroup has dropped by practically 60% to fifteen.7 trillion dong ($620.5 million), quicker than native traders’, in keeping with stock market knowledge up to date to final week.

Amongst foreigners who absolutely divested their holdings within the conglomerate final yr are investment autos of BlackRock and DWS, whereas JPMorgan’s asset management unit practically halved its stake to 0.13%, in keeping with LSEG knowledge.

Vingroup’s largest international investor, South Korean conglomerate SK Group, is planning to promote by mid-February about one-fifth of its 6% holding as half of a probably broader divestment plan in Southeast Asia.

Vingroup stated foreigners’ internet promoting was a wider development in Vietnam and Southeast Asia, pushed largely by high rates of interest in the USA.

VinFast misplaced practically $2 billion within the first three quarters of final yr, latest knowledge show, however is narrowing its losses as income grew because of car gross sales having exceeded its revised-down goal final yr.

Vingroup’s income and income rose within the first 9 months of final yr in comparison with the identical period in 2023, pushed by the sale of belongings.

Nonetheless, Vingroup’s borrowing prices are rising steadily. In Could, it issued two-year bonds that paid 12.5% curiosity, above the average 10.6% in 2023 and 9.6% in 2022 for barely longer maturities.

Vingroup is just not rated, however Fitch estimated earlier in January that its debt was anticipated to be close to risk ranges for Vinhomes’ rankings “due to rising investments in the group’s automaker, and our expectations of a sustained operating cash burn”.

“Consolidated net debt/net property assets at Vingroup is expected to be above 55% over the short term,” Fitch stated, noting that if it moved past 60% on a sustained foundation, that might result in the downgrade of Vinhomes’ present ranking, making its debt costlier.

Vingroup stated its debt remained at secure ranges.

Vietnamese lender Techcombank, which is one of Vingroup’s largest collectors, didn’t reply to a request for remark.

Regardless of having a manageable, low debt, “Vinhomes’ credit quality is constrained by its growth ambitions and linkages with its parent, Vingroup,” Moody’s stated.

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

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