Fitch rates Vietnam's Vingroup 'B+'; proposed notes 'B+(EXP)'
Fitch rates Vietnam's Vingroup 'B+'; proposed notes 'B+(EXP)'
Fitch Ratings has assigned Vietnam-based property developer Vingroup JSC (Vingroup) Long-Term Foreign and Local Currency Issuer Default Ratings of 'B+' with Stable Outlook.
* VIC assigned 'B' rating with outlook stable; proposed notes rated 'B'
At the same time the agency has assigned Vingroup a senior unsecured rating of 'B+' and Vingroup's proposed senior unsecured notes due in 2017 an expected 'B+(EXP)' rating, with a Recovery Rating of 'RR4'. The proposed notes are to be issued by Vingroup and guaranteed by most wholly-owned subsidiaries and Royal City, which is a 98.36% subsidiary. The final rating is contingent upon receipt of documents conforming to information already received.
The ratings reflect Vingroup's leading market position and established brand in the Vietnamese high-end property market balanced by its susceptibility to volatile property development income. The rating also reflects Vingroup's adequate liquidity and a demonstrated track record in accessing various funding sources, as well as its limited diversification and small scale.
Vingroup is reliant on volatile property development for much of its cash generation but the company has established recurring income properties mostly from retail and office spaces. The recurring revenue base is expected to become a significant contributor from mid-2013 with the Royal City and Times City projects coming on line in 2013. Recurring revenue is projected to grow to almost 30% of Vingroup's revenue by end-2014, up from 22% currently. This, together with presales commitments and Vincom Village project sales, underpins Fitch's expectation that Vingroup will be able to maintain sufficient liquidity in the next 12 to 18 months, as reflected in the Stable Outlook.
Vingroup's current development project focuses on Royal City, Times City, and Vincom Village projects. While additional pre-sales for Royal City and Times City have been slow during 2012 the company has the capacity to defer developments and conserve cash, and partially monetise Vincom Village project to other sub-developers to improve its liquidity. Up to September 2012 management reported an additional 227 units sales were booked at Vincom Village, indicating relatively active sales despite the unfavourable property market. Demand for apartments in Hanoi and Ho Chi Minh cities has been impacted by Vietnam's high inflationary environment, where domestic interest rates are 12% to 15% and credit from banks is constrained. Strong competition to attract buyers is being reflected in lower selling prices.
Vingroup has around USD120m debt maturing in 2013 and sufficient cash balances to meet the same. Liquidity will come under pressure if the company fails to achieve its development sales target in the next 24 months, particularly as its USD300m convertible bonds put option comes due in 2014. Nevertheless, Fitch draws considerable comfort from the company's track record in accessing various funding sources, and its ability to refinance.
What could trigger a rating action?
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Material increase in external borrowings to maintain current liquidity position
- Downgrade of Vietnam's Country Ceiling of 'B+'
Positive rating action is not expected in the medium-term primarily owing to Vingroup's inherent exposure to cyclical property development and its small scale.
Fitch
