Vingroup’s Electric Vehicle Gamble Sparks Concerns
Vietnam’s conglomerate giant, Vingroup, is facing intense scrutiny over its strategy to back loss-making electric vehicle maker VinFast, as its shares plummet to multi-year lows and foreign investors flee. The company’s borrowing costs are also on the rise, sparking concerns about its financial health.
Ratings Agencies Sound the Alarm
Moody’s and Fitch have given “junk” ratings to the debt of Vingroup’s most profitable unit, real estate firm Vinhomes, as well as its planned $500 million international bond sale. The agencies cited Vinhomes’ links to Vingroup as the reason for the speculative-grade ratings. This move has raised questions about Vingroup’s broader financial health.
Billions Poured into VinFast
Vingroup and its founder, Pham Nhat Vuong, have invested a staggering $13.5 billion into VinFast as of October, with an additional $3.5 billion promised in November. Despite concerns raised by investors, Vingroup remains committed to supporting the electric automaker.
Market Capitalization Shrinks
Vingroup’s market capitalization has shrunk by nearly half to about $6 billion since VinFast’s listing in August 2023. Its shares have fallen 6.6% over the past year, underperforming the Vietnam market.
Foreign Investors Flee
Foreign investors, including BlackRock and DWS, have fully divested their holdings in Vingroup, while JPMorgan’s asset management unit has nearly halved its stake. South Korean conglomerate SK Group, Vingroup’s largest foreign investor, is planning to sell about one-fifth of its 6% holding.
Borrowing Costs Rise
Vingroup’s borrowing costs are rising steadily, with its latest bond issue paying 12.5% interest. Fitch estimates that the company’s debt is expected to be close to risk levels, citing rising investments in VinFast and sustained operating cash burn.
Vingroup’s Response
Vingroup remains committed to supporting VinFast, citing strong expected growth for its units this year. The company believes that its revenue and profits will continue to rise, driven by the sale of assets. However, analysts remain skeptical, citing VinFast’s losses and Vingroup’s rising borrowing costs.
A Risky Bet?
As Vingroup’s shares continue to struggle, investors are left wondering if the company’s gamble on VinFast will pay off. With foreign investors fleeing and borrowing costs rising, Vingroup’s financial health hangs in the balance.
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