EV maker Vinfant’s bankruptcy has put more pressure on parent Vingroup as foreign investors sell off, according to Reuters.

By Francesco Guraccio and Phung Nguyen

HANOI (Reuters) – Vietnam’s Congress Vingroup is facing renewed scrutiny over its strategy to prop up loss-making electric vehicle maker Vindent (NASDAQ:

Pressure on the company, a household name in Vietnam for auto, real estate, retail and resorts, intensified this month when Moody’s (NYSE: ) and Fitch assigned ‘junk’ ratings to Vingroup’s most profitable unit, the real estate firm’s debt. Vinhomes (HM:), as well as for a planned $500 million international bond sale.

The two agencies said the speculative rating was due to Vinhomes’ relationship with Vingroup.

Leif Schneider, head of Luther’s international law firm in Vietnam, said this year “may be indicative of Vingroup’s broader financial health.”

If Vingroup’s performance does not improve, “Vingroup may face further financial erosion,” he said, adding that Vingroup’s support for subsidiaries could reduce financial pressure.

The company and its founder, Pham Nhat Vung, have invested $13.5 billion in loans and grants for electric cars since October and pledged nearly $3.5 billion in November, despite investors’ concerns about bets raised at the company’s last two annual shareholder meetings.

Vingroup’s market capitalization has nearly halved to $6 billion since Vingroup’s listing in August 2023. Last year, the stock fell 6.6%, the most among the 10 largest companies in Vietnam, and a 7.5% increase for Vietnam. 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 is Vinfant,” said Nguyen Thi Minh, head of research at Yuanta Securities Vietnam.

But Vingroup is not backing down.

“Vingroup will continue to support the development of the subsidiary,” he told Reuters on Wednesday, reiterating its long-term commitment to Nasdaq-listed Vingroup.

Strong expected growth for the segment this year will attract investment in the company, Vingroup said.

Borrowing costs

So far, investors, especially from overseas, have not been convinced. Since the VinFast listing, the value of foreigners’ combined holdings in Vingroup has fallen 60% to 15.7 trillion dong ($620.5 million), faster than that of domestic investors, according to stock market data updated last week.

Investment vehicles BlackRock (NYSE: ) and DWS were among foreigners who fully divested their holdings in the conglomerate last year, while JPMorgan’s asset management unit nearly halved its stake to 0.13 percent, according to LSEG data.

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

Vingroup said net sales to foreigners were a broader trend in Vietnam and Southeast Asia, largely due to higher interest rates in the United States.

Hyundai lost nearly $2 billion in the first three quarters of last year, according to the most recent data, but it is narrowing its losses as revenue rose on the back of improved auto sales last year.

Vingroup’s revenue and profit in the first nine months of last year were driven by asset sales compared to the same period in 2023.

However, Vingroup’s borrowing costs are constantly rising. It issued two-year bonds that paid 12.5% ​​interest in May, above the average of 10.6%, and 9.6% in 2022.

Vingroup is not rated, but Fitch estimated earlier in January that the debt for Vinhomes’ ratings would be close to the risk level due to “an increase in the group’s auto and we expect continued cash burn”.

“Vingroup’s consolidated net debt/net asset ratio is expected to exceed 55% in the short term,” Fitch said, adding that if it moves above 60% on a sustained basis, this would lead to a downgrade of Vinhomes’ current rating. It makes the debt more expensive.

Vingroup said its debt remained at stable levels.

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

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