Vingroup's Electric Vehicle Gamble Under Scrutiny Amidst Falling Share Prices and Rising Debt Costs

Hanoi, Vietnam - Vingroup, a Vietnamese conglomerate, is facing renewed scrutiny over its investment strategy in VinFast, its electric vehicle (EV) subsidiary. Concerns have arisen as its share prices approach multi-year lows due to foreign investor sell-offs and increasing borrowing costs.

Moody's and Fitch Downgrade Vinhomes' Debt

This month, Moody's and Fitch assigned "junk" ratings to the debt of Vinhomes, Vingroup's most profitable real estate unit. The agencies cited Vinhomes' links with Vingroup as a key factor in their downgrade. Ratings declined to speculative-grade, an indication of potential financial weakness.

Vinfast's Impact on Vingroup's Financial Health

Analysts suggest that Vingroup's broader financial health may be at risk if VinFast's performance does not improve. As of October, Vingroup had invested a staggering $13.5 billion in the EV maker through loans and grants, promising an additional $3.5 billion in November. However, investors have raised concerns about the viability of this investment, leading to a 50% decline in Vingroup's market capitalization since VinFast's listing in August 2023.

Over the past year, Vingroup's share performance has significantly underperformed the Vietnamese market, leading to a decline of 6.6%, the steepest among the 10 largest listed companies.

Foreign Investors Divesting Holdings

Data from stock market reveals a significant drop in foreign investors' holdings in Vingroup. Since VinFast's listing, foreign combined holdings have plummeted by almost 60%. Notable foreign investors who have divested include BlackRock, DWS, and SK Group.

Rising Borrowing Costs

Vingroup's borrowing costs are also on the rise. In May, it issued two-year bonds with an interest rate of 12.5%, higher than the average rates in previous years for similar maturities. Fitch estimates that Vingroup's debt may approach risk levels due to its investment in VinFast.

Vingroup's Defense

Despite the challenges, Vingroup remains committed to supporting VinFast. The company states that it anticipates growth in its other units, attracting investment in the company. However, analysts remain skeptical, with the biggest challenge for Vingroup being perceived as VinFast.