OREANDA-NEWS. The following announcement replaces the version published on 5 October 2015 to correct the ratio of investment properties' EBITDA to interest expense under the positive rating sensitivities.

Fitch Ratings has affirmed Vietnam-based Vingroup JSC's (Vingroup) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs), senior unsecured rating and the rating on its senior notes at 'B+'. The Outlook is Stable.

Vingroup is Vietnam's largest listed property company by market capitalisation. Its cash receipts from the sale of residential units and recurring revenue from its investment property portfolio - comprising retail, hospitality, healthcare and education businesses - increased strongly- in 2014 and 1H15. Vingroup's expansion in 2014 and so far in 2015 - while maintaining a moderate financial leverage (the ratio of net adjusted debt to the sum of investment properties and inventory net of customer advances) - was underpinned by Vietnam's improving macroeconomic environment. The ratings reflect Vingroup's aggressive expansion pipeline, which is likely to result in a spike in financial leverage by end-2015 as well as the lower coverage of interest expense offered by recurring EBITDA from the investment property portfolio when compared with regional peers.

KEY RATING DRIVERS
Supportive Macroeconomic Environment: Fitch upgraded Vietnam's Long-Term IDRs to 'BB-' from 'B+' in November 2014 on the back of accelerating GDP growth, moderation of inflation, and high savings and investment rates. Vietnam's GDP growth accelerated to 6.5% in 9M15 (9M14: 5.6%), primarily driven by faster growth in the manufacturing sector and steady expansion of the services and agricultural sectors.

Vingroup's cash sales from property development rose 73% to VND14.6trn (USD649.7m) in 2014 and the pace of growth has been sustained 1H15. The improving macroeconomic environment is likely to support the successful launch of Vingroup's projects in the pipeline and the expansion of its investment property portfolio in the medium term.

Robust Residential Unit Sales: Vingroup's property development portfolio up till 1H14 was concentrated, with cash flows primarily from sale of residential units at Royal City, Vinhomes Riverside and, to a limited extent, Times City. The company has expanded its property development business after the success of these projects, and has launched more projects, such as new phases in Times City, Hoi An, Dan Phuong, Vinhomes Central Park, Can Tho, Vinpearl Premium Golf Land and Villas and Bac Ninh. The increase in projects launched reduces concentration risks and increases the likelihood of Vingroup meeting its growth targets.

Growing Investment Property Portfolio: Vingroup is simultaneously expanding its development property and investment property businesses. The company has aggressive plans to increase its retail portfolio to over 20 malls by end-2015 from six malls at end-2014. Vingroup is also expanding its other businesses, such as hospitality, healthcare and education, which generate recurring revenue. Fitch views the dual focus favourably as the investment property portfolio would enhance cash-flow visibility and increase the ratio of investment property EBITDA to interest expense to over 1.0x (2014: 0.89x).

Aggressive Though Scalable Expansion: Fitch projects Vingroup's capex to peak at VND46.6trn in 2015 before decreasing in 2016. In addition to the risks associated with rapid expansion, net financial leverage is projected to spike to around 50% by end-2015 (end-2014: 43%). But the scalable nature of Vingroup's capex provides the company with the flexibility to reduce capex if property development sales are lower-than-projected.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Vingroup include
- Capex will reach VND46.6trn in 2015 and around VND20.0trn a year in 2016 and 2017
- Cash sales from property development would increase to VND35trn in 2015
- Vingroup to reduce gross debt annually from 2016 to 2018

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- The ratio of net adjusted debt to the sum of net inventory and investment properties exceeding 60% on a sustained basis, or
- The ratio of investment properties' EBITDA to interest expense remaining below 1.0x on a sustained basis

Positive: Future developments that may, individually or collectively, lead to positive rating action include
- The ratio of net adjusted debt to the sum of net inventory and investment properties declining to less than 40% on a sustained basis
- The ratio of investment properties' EBITDA to interest expense improving to 2.00x on a sustained basis, and
- Vingroup generating positive free cash flows (cash flow from operations less capex less dividends) on a sustained basis

LIQUIDITY
Comfortable Liquidity: The rising revenue from Vingroup's development and investment property businesses, VND13.5trn in additional borrowings planned for 2015 (of which VND10.9trn was raised in 1H15) and the VND2.15trn preference share investment by Warburg Pincus underpin Vingroup's comfortable liquidity.

Moderate Refinancing Risk: Contractual debt maturities for 2H15, 2016 and 2017 are VND3.7trn, VND10.2trn and VND11trn respectively. Outstanding cash and bank deposits as of 30 June 2015 were VND8.8trn and VND5.5trn respectively, which are adequate to meet debt maturities till end-2016.

FULL LIST OF RATING ACTIONS
The full list of rating actions is as follows:
Vingroup JSC
Long-Term Foreign-Currency IDR affirmed at 'B+'; Outlook Stable
Long-Term Local-Currency IDR affirmed at 'B+'; Outlook Stable
Senior unsecured rating affirmed at 'B+'
Rating on senior notes affirmed at 'B+'