VinFast's Losses Put Vingroup's Financial Health in the Spotlight as Foreign Investors Sell

Vietnamese electric vehicle (EV) maker VinFast's mounting losses have put significant pressure on its parent company, Vingroup, as foreign investors have been selling their holdings in the conglomerate. Vingroup, a household name in Vietnam with businesses spanning autos, real estate, retail, and resorts, has seen its shares near multi-year lows as investors, particularly from overseas, have been net selling. This trend has been driven largely by high interest rates in the United States, as well as concerns about VinFast's financial performance and Vingroup's rising borrowing costs.

VinFast, which listed on Nasdaq in August 2023, has been struggling to turn a profit. In 2023, the EV maker reported a net loss of over $2 billion, despite a 90% increase in revenue. This has raised concerns about VinFast's ability to generate profits and its impact on Vingroup's overall financial health. Vingroup has poured billions into VinFast, with $13.5 billion invested as of October 2023, and a promise of another $3.5 billion in November. This heavy investment has contributed to Vingroup's rising debt and borrowing costs, with its two-year bonds paying 12.5% interest, above the average for slightly longer maturities in 2023 and 2022.

Vingroup's market capitalization has shrunk by nearly half to about $6 billion since VinFast's listing, with its shares falling 6.6% over the past year, the most among the 10 largest listed companies in Vietnam. Vingroup's shares traded in December at their lowest level since 2017 and have only recovered slightly since. The conglomerate's largest foreign investor, South Korean conglomerate SK Group, is planning to sell about one-fifth of its 6% holding by mid-February as part of a possibly broader divestment plan in Southeast Asia.

Vingroup's borrowing costs are rising steadily, with Fitch estimating that its debt is expected to be close to risk levels for Vinhomes' ratings due to rising investments in VinFast and expectations of a sustained operating cash burn. If Vingroup's consolidated net debt/net property assets move beyond 60% on a sustained basis, it could lead to a downgrade of Vinhomes' current rating, making its debt costlier. Despite having a manageable, low debt, Vinhomes' credit quality is constrained by its growth ambitions and linkages with its parent, Vingroup.

Vingroup has reiterated its long-standing commitment to supporting VinFast's development, but investors, especially from overseas, have been unconvinced. To address these concerns and attract investment, Vingroup could consider the following steps:

1. Improve VinFast's financial performance: Vingroup should work with VinFast to reduce its losses and improve its profitability by increasing sales, reducing production and materials costs, and optimizing its production processes.
2. Diversify its investment portfolio: Vingroup could consider reducing its exposure to VinFast and exploring other investment opportunities to mitigate the financial strain on the company.
3. Address high borrowing costs: Vingroup could work on improving its creditworthiness by strengthening its financial position, reducing its debt levels, and demonstrating a commitment to responsible financial management.
4. Engage with investors: Vingroup should proactively communicate with investors, addressing their concerns, and outlining its plans to improve its financial health and attract investment.
5. Seek alternative sources of funding: Vingroup could explore alternative funding sources, such as strategic partnerships or private equity investments, to supplement its existing funding arrangements.

By implementing these measures, Vingroup can better manage its debt, maintain access to capital, and mitigate the impact of VinFast's performance on its borrowing costs.