Losses at electric vehicle maker VinFast put pressure on parent Vingroup as foreign investors sell Reuters

By Francesco Guarascio and Phuong Nguyen

HANOI (Reuters) – Vietnamese conglomerate Vingroup is facing re-examination of its strategy to prop up loser electric vehicle maker VinFast (NASDAQ: ), with its shares near multi-year lows as foreign investors sell and its borrowing costs rise.

Pressure on the company, a household name in Vietnam with businesses spanning autos, real estate, retail and resorts, intensified this month as Moody’s (NYSE: ) and Fitch downgraded the debt of Vingroup’s most profitable unit, the real estate business, to ‘junk’ Vinhomes (HM:), as well as the planned international bond sale worth 500 million dollars.

The two agencies said the speculative ratings were the result of Vinhomes’ ties to Vingroup.

This year “could become indicative of Vingroup’s broader financial health,” said Leif Schneider, head of international law firm Luther in Vietnam.

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

The conglomerate and its founder, Pham Nhat Vuong, poured $13.5 billion into the electric car maker in loans and grants in October and pledged nearly $3.5 billion more in November, despite concerns investors expressed about the bets on the last two annual meetings of shareholders. .

Vingroup’s market capitalization has shrunk by nearly half to about $6 billion since VinFast’s listing in August 2023. Over the past year, its shares have fallen 6.6%, the most among Vietnam’s top 10 listed companies, and weaker than the rise of 7.5% for the Vietnam market, according to LSEG data.

In December, its stock traded at its lowest level since 2017. It has recovered slightly since then, but was still near that multi-year low this week.

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

Vingroup, however, is not giving up.

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

Strong expected growth in its units this year would attract investment in the company, Vingroup said.

BORROWING COSTS

Until now, investors, especially from abroad, were not convinced. Since VinFast’s listing, the value of foreigners’ joint stakes in Vingroup has fallen nearly 60% to 15.7 trillion dong ($620.5 million), faster than local investors, according to stock exchange data updated to last week.

Among the foreigners who completely sold their stakes in the conglomerate last year were investment holders BlackRock (NYSE: ) 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 one-fifth of its 6% stake by mid-February as part of a possible broader sale plan in Southeast Asia.

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

VinFast lost nearly $2 billion in the first three quarters of last year, the most recent figures show, but is paring its losses as revenue rose 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, boosted by asset sales.

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

Vingroup is not rated, but Fitch earlier in January estimated its debt was expected to be close to the risk level of Vinhomes’ rating “due to growing investments in the group’s carmaker and our expectations of sustainable operational cash burn”.

“Consolidated net debt/net assets at Vingroup is expected to be above 55% in the short term,” Fitch said, noting that if it moves above 60% on a sustained basis, it could lead to a downgrade of Vinhomes’ current rating. , making his debt more expensive.

Vingroup said its debt remained at stable levels.

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

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