FiinRatings announced that it has assigned a first-time Long-term Issuer Credit Rating ‘BBB+‘ to Khang Dien House Trading and Investment Joint Stock Company (“KDH” 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 KDH 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 KDH in achieving its business plans from ongoing projects in the period 2022-2024.

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Beside assessing KDH’s business risk profile and financial risk profile, our rating opinion for KDH is also built on the current macroeconomic environment, the residential property outlook, and regulatory changes that could influence the sector as a whole and KDH in particular.

Vietnam residential real estate sector especially in Ho Chi Minh City area is forecasted to have a high growth in a long term despite the impact from COVID-19 over the last 2 years which caused certain interruption in implementation progress and sales activities. Specifically, the average number of apartment units sold in Ho Chi Minh City dropped to approximately 29 thousand per annum in 2020-2021 compared to the average of 68 thousand units per annum in the 5-year period 2015-2019 before the pandemic.

We have also factored in our assessment for the current industry risk factors, including (i) refinancing pressures for debts coming due in the context of credit regulation changes such as the Circular 16 by State Bank of Vietnam to restrict credits in term of corporate bonds by commercial banks; (ii) expected higher costs of capital due to the soaring interest rate environment; (iii) increasing raw material prices and outsourcing service costs driving by rising inflation; and (iv) the Government’s regulatory changes in effect or under discussion including the auction of land use rights, real estate capital gain taxes, and imposing qualification standards to real estate brokers and agents.

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Our rating outlook Stable given to KDH represents the likelihood of rating changes for the next 24 months. We may consider changing KDH’s rating in the following scenarios:

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Upside Scenario:

  • Cash flow from operating activities is better than our base-case forecast from key projects in 2022-2024 in Thu Duc City and Binh Chanh District including The Classia, The Privia, Clarita and The Solina.
  • The Government’s infrastructure development plan is accelerated, facilitating KDH’s site clearance and implementation progess for key projects, including the Tan Tao Residential Area project – Area A ( “Tan Tao A”).

Downside Scenario:

  • Increasing debt level while cash flow is not as good as our base-case forecast, which could lead to higher financial leverage in considerable length of time, for example when Debt/Equity ratio is reaching higher than 5 times.
  • Rising interest rates or macroeconomic factors may affect the Company’s ability to raise capital as planned to implement the projects.
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