By Francesco Guarascio and Phuong Nguyen

HANOI (Reuters) – Vietnamese conglomerate Vingroup is facing fresh scrutiny over its strategy to shore up the loss of electric vehicle maker VinFast (NASDAQ: ), with its shares near multi-year lows while foreign investors are selling and its borrowing costs are rising.

Pressure on the company, a household name in Vietnam with businesses spanning automobiles, real estate, retail and resorts, intensified this month as Moody’s (NYSE: ) and Fitch gave ‘junk’ ratings debt rating of Vingroup’s most profitable unit, real estate firm. Vinhomes (HM :), as well as a planned $500 million international bond sale.

The two agencies said the speculative-grade ratings were due to Vinhomes’ links to Vingroup.

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

“Vingroup may face further financial decline” if VinFast’s performance does not improve, he said, adding that Vingroup’s increased support to subsidiaries could reduce the financial burden. -os.

The conglomerate and its founder, Pham Nhat Vuong, poured $13.5 billion into the electric automaker in October in loans and grants, and pledged another nearly $3.5 billion in November, despite concerns about the stakes. raised by investors at the company’s last two annual shareholders meetings. .

Vingroup’s market capitalization has nearly halved to about $6 billion since VinFast’s listing in August 2023. Over the past year, its shares have fallen 6.6%, the most among the 10 largest listed companies in Vietnam, and underperformed in the 7.5% increase in the Vietnam market, according to LSEG data.

Its shares traded in December at their lowest level since 2017. They have recovered slightly since but are still near multi-year lows this week.

“The biggest challenge for Vingroup remains VinFast,” said Nguyen The Minh, head of research at Yuanta Securities Vietnam.

Vingroup, however, is not backing down.

“Vingroup has been and will continue to support the growth of the subsidiary,” it told Reuters on Wednesday, reiterating its long-standing commitment to Nasdaq-listed VinFast.

Strong expected growth for its units this year will attract investment to the company, Vingroup said.

COST OF BORROWING

At the moment, investors, especially from abroad, are not convinced. Since VinFast’s listing, the value of Vingroup’s foreign joint assets has fallen by nearly 60% to 15.7 trillion dong ($620.5 million), faster than local investors, according to stock market data compiled by last week’s update.

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

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

Vingroup said net selling to foreigners is a broader trend in Vietnam and Southeast Asia, due to high interest rates in the United States.

VinFast lost nearly $2 billion in the first three quarters of last year, the most recent data showed, but narrowed its losses as revenue grew as vehicle sales exceeded adjusted last year’s target.

Vingroup’s revenue and income increased in the first nine months of last year compared to the same period in 2023, driven by the sale of assets.

However, Vingroup’s borrowing costs continue to rise. In May, it issued two-year bonds paying 12.5% ​​interest, above the average of 10.6% in 2023 and 9.6% in 2022 for longer maturities.

Vingroup is not rated, but Fitch estimated earlier in January that its debt is expected to be close to the risk level for Vinhomes ratings “due to the increased investment in the group’s automaker, and our expectations of a continuous burn of operational cash”.

“Consolidated net debt/net property assets of Vingroup is expected to be above 55% in the short term,” Fitch said, noting that if it exceeds 60% on a sustained basis, that could lead to downgraded Vinhomes current rating, making its debt more expensive.

Vingroup said its debt remains at a stable level.

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

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