Vietnam, December 10 –
HÀ NỘI — Vietnam’s corporate sector is likely to face a tougher year in 2023 due to higher funding costs, while sectors such as property see consumer and creditor sentiment weakening, S&P said. Global Ratings’ latest report on Vietnam’s 25 largest listed companies has revealed. .
The report, titled “Vietnam Business Primer: Post-COVID Leverage, Liquidity and Governance Trends,” analyzes the financials of the 25 largest listed companies by market capitalization or asset base on the two domestic stock exchanges. We examined structure, liquidity, and governance.
“Vietnam’s corporate sector’s structural credit weakness is likely to crystallize in 2023,” said S&P credit analyst Xavier Jean.
“These include reliance on short-term funding, relatively narrow funding channels even for large companies, higher funding costs and refinancing risks, and key risks related to governance and transparency.”
Vietnamese businesses have been relatively resilient during the pandemic, according to the report. Median profits grew 17% compounded between 2017 and 2022, about 40% faster than large companies in Southeast Asia.
Vietnamese companies also recovered faster after the pandemic than their regional peers, achieving nearly 40% growth in EBITDA (earnings before interest, tax, depreciation and amortization) in 2021 compared to 2020. increase.
However, when it comes to financial structure, large enterprises in Vietnam often rely on short-term funding and domestic funding channels. As of September 30, more than half of the total debt of his 25 companies surveyed had been paid within his 12 months. The weighted average debt term of the 25 companies is estimated at 1-2 years, about half the term of other emerging market large companies in Southeast Asia.
Nearly two-thirds of the 25 companies raise funds domestically only. Except for large state-owned enterprises and the largest conglomerates such as Vingroup and Masan, few companies have access to international banks and capital markets.
“Large Vietnamese companies have not significantly diversified their funding sources across borders, unlike their peers in most Southeast Asian countries,” Jean said.
Vietnam’s domestic banking system has a history of booms and busts in lending, poor asset quality, and sectoral concentration in volatile areas such as real estate. Narrow funding channels exacerbate refinancing risk during downturns, as refinancing becomes dependent on creditor sentiment, the report said.
The domestic bond market is expanding. Domestic bond issuance to GDP has nearly doubled from 22% in 2017 to around 40%, according to Asian Development Bank data. However, these issuances are still concentrated in the government, real estate, construction and financial sectors.
“We believe there is a real opportunity for Vietnamese companies with established business models and good governance, or underutilized state-owned enterprises, to expand their funding sources beyond domestic borders,” said Zhang. He said many large Indonesian, Malaysian and Thai companies have successfully made this transition and international investors are eager to diversify.
However, large Vietnamese companies tend to hold significantly more cash than regional companies. About 60% of them have cash and bank deposits well in excess of their short-term debt, helping to soften the term of their short-term debt to some extent.
The report also highlights the increase in credit quality among Vietnam’s large corporate sector over the past five years. Investments in working capital and capital expenditures were the main drag on cash flow, and cash shortfalls were generally funded by debt.
Governance and transparency considerations could become a key focus for creditors amid rising refinancing requirements, according to the report. These may have been put on the back burner amidst the jumble of revenues and profits. Aggressive growth strategies, debt-driven business models, transparency or governance issues have been hidden or forgotten and resurfaced. — VNS
