FiinRatings: Credit Rating Announcement on Van Phu - Invest Investment Joint Stock Company (BB+ | Outlook: Stable)

20 April 2022 - 08:00 PM Alternate Text

 

Hanoi, 20 April 2022

FiinRatings has assigned an initial Long-term Issuer Credit Rating of 'BB+' to Van Phu - Invest Investment Joint Stock Company (“VPI” or “the Company”) with a Stable Outlook.

RATING RATIONALE

Business risk profile of VPI is assessed as Strong due to the Company’s good track record as well as extensive experiences in project legal implementation and in land bank acquisition. This strength is reflected by VPI's large land bank across major cities such as Ho Chi Minh City, Hanoi, and other provinces/regions that are currently attracting both investors and customers, such as Hai Phong, Thanh Hoa, Bac Giang. In addition, VPI has had good project implementation capabilities, which ensure timely project construction and handover progress. This is also a key strength that can help the Company maintains its solid business position in short and medium term.

In our opinion, the main business risk of VPI lies within a few projects with large investment value that have been planned to complete in the 2022-2024 period and located in relatively new geographical areas (Hai Phong, Thanh Hoa, Thua Thien– Hue, Can Tho, etc.). These projects are benefited from their relatively favorable locations which can help VPI maintains its strengths in existing product segments. However, because VPI previously focused mainly on projects in the populated areas or central districts of Hanoi and Ho Chi Minh City, we assess that the implementation of these new projects in the satellite cities may carry potential business risk, especially when there is downturn in the real estate market.

VPI's financial leverage, which is measured by Debt/Equity ratio, of 1.1x in 2021 is already higher than the industry average and is expected to increase in the next 1-2 years. This is due to the Company's strategy of expanding its land bank for project development in the next 5-10 years that requires more fund. Furthermore, debt coverage ratio, which is measured by Debt/EBITDA, in 2021 of VPI is at 6.0x, which is significantly higher than both the Company's average debt maturity at 2.02 years (year-end 2021) and the industry average. According to FiinRatings' projection, this debt coverage ratio will still remain relatively high in the coming years. Additionally, FiinRatings also believes that the increase in debt level to finance real estate projects in the current environment of strong fluctuations in construction material prices, rising inflation and shrinking credits from commercial banks may increase the financial risks of VPI.

VPI's financial liquidity profile is projected to be at an adequate level due to the Company’s proven project implementation capabilities and its position in the capital market. In the next 12 months, we assess that VPI will be able to maintain a relatively appropriate level of liquidity even in unfavorable market conditions, according to our stress-testing scenario. Furthermore, VPI's ability to maintain its liquidity has also been demonstrated through market downturns; one in 2011 when the real estate market experienced a “frozen” period, and another in 2020 when the market was heavily affected by the COVID-19 pandemic.

KEY CREDIT FACTORS FOR AN UPGRADE OR DOWNGRADE OF THE RATINGS

In our opinion, the credit rating of VPI is likely to remain stable for the next 12 months. However, we may consider changing VPI's rating in the following scenarios:

Upside Scenario:

  • VPI generates higher-than-projected cash inflows compared to our base-case scenario from major projects in 2022-2023 including Vlasta Sam Son, Con Khuong, Loc Binh Resort, Vlasta Thuy Nguyen and Thap Doi - Bac Giang.
  • VPI successfully infuses significantly higher amount of equity in 2023 compared to our projection, resulting in a lower financial leverage.
  • Financial ratios for VPI's capital structure and liquidity profile are significantly improved compared to the base-case scenario, especially in the 2023-2024 period (for example, the Debt/EBITDA ratio is improved to less than 1.5x and with consideration of other factors).

Downside Scenario:

  • An increase in debt level while income and cash inflows are significantly below FiinRatings' base-case projection, causing financial leverage to remain high for a long time (e.g., Debt/Equity ratio exceeding 2.5x, along with the consideration of other factors).
  • Unfavorable market conditions put pressure on the Company to bear higher costs, or force the Company to decrease product selling prices.
  • Changes in macroeconomic factors severely affect the Company's ability to mobilize capital for project implementation.

Read the full rating announcement HERE.

FiinRatings, a brand and part of FiinGroup, is licensed by the Ministry of Finance to operate as a Credit Rating Agency (“CRA”) for Vietnam on 20 March 2020. With continuous effort to improve expertise and credit rating methodologies, on 24 May 2021, FiinRatings received Technical Assistance from S&P Global Ratings and ADB. On March 11th, 2022, FiinGroup has been officially approved by the Climate Bonds Initiative (CBI) as the first authorized company in Vietnam to verify green bonds issued by Vietnamese businesses when participating in CBI's program.

FiinRatings maintains a strict, independent policy to meet current regulations in providing credit rating services in Vietnam as well as to comply with our conflicts-of-interest policy and to ensure the objectivity and independence in giving opinion on our credit ratings. Visit us for more information.

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