Reuters logo
Fitch Affirms Vietnam's Vingroup JSC at 'B+'; Outlook Stable
October 4, 2016 / 9:16 AM / a year ago

Fitch Affirms Vietnam's Vingroup JSC at 'B+'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE, October 04 (Fitch) Fitch Ratings has affirmed Vietnamese property developer, Vingroup JSC's (Vingroup) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and the rating on its senior unsecured notes at 'B+'. Fitch has also assigned a Recovery Rating of 'RR4' to the senior unsecured notes. The Outlook on the IDR is Stable. The affirmation reflects Fitch's view that the company's robust performance in its property development business mitigates the losses in its nascent consumer retail business. As result, we expect Vingroup to maintain its current moderate net financial leverage. Deleveraging to a lower level may be possible when its retail business matures and starts being profitable, which is likely in 2019 if Vietnam's macroeconomic environment remains supportive. KEY RATING DRIVERS Unprofitable Consumer Retail Business: Vingroup in 2015 embarked on an aggressive strategy to gain market dominance in Vietnam's nascent consumer retail sector. Its multi-format retail business comprising supermarkets, convenience stores, electronic appliances and information and communication technology stores and specialty retail stores are located in 23 of Vietnam's 63 cities and provinces. As a result of a very fast rollout, which was evident from the nine-fold rise in revenue to VND4.31trn in 2015, the business remains unprofitable with a negative EBITDA margin of 29% in 2015 (2014: negative 18%). The company expects to start generating positive EBITDA in 2019, which is possible if it remains disciplined in its execution and the macroeconomic environment remains healthy. Robust Property Development Performance: Fitch views the rising granularity of Vingroup's property development portfolio and its ability to sustain a high pre-sales rate of around 85% favourably. Cash collections from property sales quadrupled to VND57.6trn in 2015 from VND14.65trn in 2014. Vingroup's sales and revenue up to end-2015 were mainly driven by Royal City, Times City and Central Park, with small contributions from Vinhomes Riverside, 56 Nguyen Chi Thanh, Can Tho Villas and Vinpearl beach villa projects. Vingroup's cash flows up to end-2019, however, will be driven by six projects under development - Vinhomes Gardenia, Vinhomes Golden River, Vinhomes Paradise, Vinhomes Riverside 2, Vinhomes Smart City and Vinhomes La Seine. Growing Investment Property Portfolio: Vingroup pursues a two-pronged strategy of aggressively expanding its property development and investment property businesses. Investment property revenue rose by 33% to VND6.76trn in 2015. EBITDA margin for the investment property business moderated to a still healthy 48% in 2015 (2014: 87%) due to higher marketing expenses. Stable Financial Profile: The robust performance of Vingroup's property development business translated into moderate net financial leverage of 42% in 2015 (2014: 43%) despite the sizeable capex incurred in 2014 and 2015. The coverage of consolidated interest expense by investment property EBITDA was lower at 0.91x in 2015 (2014: 1.39x) due to higher marketing expenses. Fitch estimates that Vingroup's cash flows from the property development business will offset its consumer retail business losses. Supportive Macroeconomic Environment: Vietnam (BB-/Stable) has sustained strong real GDP growth, underpinned by the robust performance of the manufacturing and services sectors, and medium-term growth prospects are favourable. The government has since July 2015 permitted foreign institutions and individuals who have been granted a Vietnamese visa to own properties with leases of 50 years or less, with the possibility of the leasehold tenor being renewed. These factors underpin the expansion of Vingroup's development, consumer retail and investment property businesses. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Vingroup include - Cash collections from property sales will be at least VND50trn a year in 2016-2019, - The VND7.0trn of outstanding preference shares as of end-2015 that were wholly subscribed by Warburg Pincus will be converted into equity in a cash-neutral transaction in 2018 RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: - The ratio of net adjusted debt to the sum of net inventory and investment properties exceeding 60%, or - The ratio of cash collections from property sales to gross adjusted debt remaining below 1.0x on a sustained basis Positive: Future developments that may, individually or collectively, lead to positive rating action include: - The ratio of net adjusted debt to the sum of net inventory and investment properties declining to less than 40%, - The consumer retail business generating positive operating cash flows, and - Vingroup generating positive consolidated free cash flows (consolidated cash flow from operations less capex less dividends) on a sustained basis LIQUIDITY Comfortable Liquidity: Vingroup's cash balance and projected operating cash flows are adequate to meet contractual debt maturities till end-2019 and to partly finance capex. Outstanding cash and bank deposits at end-2015 was VND18.0trn. Fitch estimates the company will generate annual operating cash flows of at least VND40trn. Moderate Refinancing Risk: Contractual debt maturities for the 12-month periods ending 30 June 2017 and 30 June 2018 are VND7.1trn and VND16.3trn, respectively. The outstanding cash as of end-2015 is adequate to meet debt maturities till end-2017. FULL LIST OF RATING ACTIONS Vingroup JSC Long-Term Foreign Currency IDR affirmed at 'B+'; Outlook Stable Long-Term Local Currency IDR affirmed at 'B+'; Outlook Stable Rating on senior notes affirmed at 'B+'; Recovery Rating of 'RR4' assigned Contact: Primary Analyst Nandini Vijayaraghavan, CFA Director +65 6796 7216 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Hasira De Silva, CFA Director +65 6796 7240 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012615 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below