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.
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:
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.
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