Vingroup sees credit rating cut due to Vinfast car venture, but remains unfazed

Fitch lowered the outlook from “Stable” to “Negative” on Wednesday, but kept the company’s default rating at “B+”.

It followed Vingroup’s earmarking $3.1 billion for capital expenditure for its auto venture, of which $1.4 billion is debt funded, Fitch said in a release.

“The Negative outlook reflects Vingroup's heightened business risk and our estimates that leverage, defined as net debt/adjusted inventory, is likely to rise to 58 percent in 2018, before falling to 36 percent in 2019.”

Other factors for the downgrade are Vingroup’s lack of expertise in auto manufacturing and continued losses in its retail and hospitality segments, the rating agency said.

But Vingroup vice president and CEO, Nguyen Viet Quang, said that the company has foreseen this.

“Investing in auto manufacturing is risky and therefore being downgraded is unavoidable,” he told VnExpress.

“The only way not to be downgraded is not doing this project in the first place.”

The total investment in the car and electric scooter venture is estimated at $4.2 billion, partly to be funded by its own resources and partly by debt.

Quang said Vingroup has excellent credibility and good connections with international financial organizations, and thus has been able to mobilize “record” guaranteed loans.

Vingroup said recently it has secured a 12-year, $950 million credit line from German export credit agency Euler Hermes to buy machinery and equipment.

Last August Vinfast completed syndication of a $400-million term loan facility led by four international banks.

Apart from these deals, Quang was confident that the potential vehicle demand in Vietnam and other countries VinFast plans to export to would be large.

“We are determined to create a Vietnamese car brand, and are willing to sacrifice our benefits and asset to focus all resources on VinFast.”

VinFast, Vietnam’s first carmaker, unveiled its first vehicles, a sedan and an SUV, earlier this month, causing both excitement and skepticism among Vietnamese.

From a standing start, it will create the capacity to produce 250,000 cars annually in the next five years or so, equivalent to 92 percent of all cars sold in Vietnam last year, according to data collated by the Vietnam Automobile Manufacturers’ Association.