FiinRatings just announced that it has assigned a first-time Long-term Issuer Credit Rating ‘BBB-‘ to An Gia Real Estate Investment and Development Corporation (“AGG” or “the Company”) with the Outlook: Stable.
The rating outlook reflects on both the business environment, the industry outlook and the Company’s business operations. The stable outlook on AGG factors in the recovery of the real estate market in Ho Chi Minh City after the COVID-19 pandemic, along with the Government’s orientation to accelerate investment in infrastructure. These are the factors that will support AGG in achieving its business plans from ongoing projects in the period 2022-2024, then maintaining well cashflow from operating activities and fulfilling debt obligations in the near future.
FiinRatings’ rating opinion reflects our view of AGG’s experience and capabilities in mid-end real estate development:
Strong sales experience and capabilities. Although having only expanded strongly in the last 5 years, AGG has built a remarkable position and brand equity in the Ho Chi Minh City market. The projects that the Company has been implementing are mainly residential high-rise buildings aimed at the mid-end segment. Compared to other real estate developers, AGG is currently an above-average company, with a land bank of about 80 hectares in Ho Chi Minh City and satellite cities, sufficient to support the development and growth of AGG over the next 4-5 years.
AGG’s main business risks, in our opinion, are exposure to the complex and frequently changing legal, cyclicality and volatility of the real estate sector. However, the Company’s target segment is considered to have better liquidity than other segments (e.g. tourism and resort real estate, land plots in provinces) in unfavorable real estate market conditions.
Maintained debt levels to finance expansion of new projects and will be supported by cash flows from ongoing projects. The Company’s Total Debt/Equity ratio is expected to remain at 0.8-1.2 times in the next 2 years, at a high level compared to the industry average due to the capital requirement for investment activities to expand the land bank. Meanwhile, compared to the average Total Debt/EBITDA of listed real estate companies of 2.4 times, AGG’s Total Debt/EBITDA ratio in 2021 is relatively high at 3.8 times, but the ratio is expected to decrease to the average level in 2022-2023 thanks to the cash flow from 3 key projects (WestGate, The Standard and The Song). These projects have now passed the initial investment stage, and currently have an absorption rate of 65-99%, meeting the committed construction schedule.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
In our opinion, the possibility of changing AGG’s credit rating in the next 12 months is substantially low. However, we may consider changing AGG’s rating in the following scenarios:
- Cash flow from operating activities is better than our base-case forecast plan from key projects in 2022-2023 (The Song, WestGate, The Standard, The Gio).
- Financial leverage is lowered permanently (e.g., Total Debt/Equity < 0.8 times and Total Debt/EBITDA < 2.0 times) with appropriate financial policies, especially related to M&A activities.
- Delays in the legal process, site clearance, compensation lead to larger investment capital requirements and affect the implementation progress of large projects including BC2.7 and BC3.2 projects.
M&A activities result in higher financial leverage over a long period of time (e.g., Total Debt/Equity > 1.5 times).
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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