Fitch Downgrades HAG’s Outlook on Mounting Debts

tuoitrenews | Updated : Wed, March 14, 2012,11:30 PM (GMT+0700)

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Hoang Anh Gia Lai FC boss Doan Nguyen Duc. Photo: Tuoi Tre

Fitch Ratings has revised the outlook of Vietnam-based property developer Hoang Anh Gia Lai Joint Stock Co (HAG) to ‘negative’ from ‘stable’ due to negative effect caused by the current stagnancy in local property sales.

HAG’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) have been affirmed at ‘B’.

The rating agency has also downgraded HAGL’s senior unsecured rating and its USD90m notes to ‘B-‘ from ‘B’, and revised the Recovery Rating on the notes to ‘RR5’ from ‘RR4’.

The outlook revision reflects the higher credit risk faced by HAGL due to a sharp drop in property sales in southern economic hub of Ho Chi Minh City.

“As a result, HAG was saddled with completed, but unsold, inventory of VND3.5 trillion at end-2011. In addition, the company’s net debt increased to VND8.7 trillion ($418.27 million) at end-2011 from VND2.3 trillion a year earlier, following accelerated non-property related capex,” Fitch said.

“This far exceeded Fitch’s previous expectations and has worsened recovery prospects on HAGL’s senior unsecured debt.”

“HAG is addressing these problems although at present, it is unclear whether these efforts will be sufficient to avert further deterioration in HAG’s financial profile, particularly in light of a VND1.1 trillion currently out-of-the-money convertible bond maturity in August 2013,” it said.

“HAGL has no plans to launch new property projects in the near term and instead, is focusing on liquidating its existing inventory.”

“More promisingly, some of its non-property related businesses have commenced operations and will likely improve cash flow from operations in 2012. The company has begun selling iron ore in 2011.”

“Furthermore, three of its planned 17 hydro power projects have begun generating power and more are likely to come on-stream in 2012.It is also likely to significantly reduce capex materially in 2012, though management is committed to expanding the hydro power and rubber plantation business.”

“Further negative action may be taken if the company is not on track to meaningfully reduce property inventory or if, in any quarter this year, funds from operations interest coverage falls below 2.0x.”

“The rating outlook may be revised to ‘stable’ only when the company’s property inventory has been substantially liquidated and the iron ore and hydro power businesses begin contributing meaningfully to the company. These events will alleviate current liquidity risks.”

Big tax debt

Unpaid taxes, including corporate tax, of HAG has amounted to some hundreds of billions of Vietnam dong, said the General Department of Taxation at a recent conference.

Deputy Minister of Finance Do Hoang Anh Tuan told Thanh Nien that HAG had to pay VND2 billion for slow tax payment, and if the firm fails to meet the future payment deadline, it will have it properties trade and bank account frozen for the compulsory tax collection.

HAG boss Doan Nguyen Duc, the second richest 2011’s Vietnamese stock millionaire, told newswire VnExpress that he only had yet to paid tax, and he does not intend to evade the debt payment.

At the same time, the taxation body of the Central Highland Dak Lak Province where Duc bases HAG headquarter said it had previously approved to postpone HAG corporate tax payment for the year 2010 until March 30, 2012.

Vietnam’s HAG looks expensive at current levels in terms of valuations among 12 stocks in the country tracked by at least two analysts, data from Thomson ReutersStarMine shows.The stock trades at 1.38 times its intrinsic value of VND23,785, as calculated by StarMine.The real-estate developer also scores badly on StarMine’s valuation metrics, with a Value-Momentum score of 12.It also has a poor Earnings Quality score of 11.
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