S&P downgrades Vietnam property giant on liquidity concerns

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Standard & Poor's Ratings Services has lowered its long-term corporate credit rating of HAGL Joint-Stock Co., Vietnam's second-biggest listed real estate company, to "B-" from "B".

"The rating downgrade reflects our view that HAGL's operating performance and liquidity are likely to remain weak in the next six to 12 months," S&P credit analyst Weekhim Loy wrote in a report last week.

"This is due to the challenging operating conditions for the company's residential property development business. A delay in obtaining approvals to start iron ore mining in Laos and Cambodia has exacerbated the situation for HAGL," Loy said.

S&P said it expects the company's property sales to remain depressed in 2012, due to high inflation, high interest rates and the devaluation of the dong.

Following the downgrade, HAGL shares fell 3.5 percent to VND22,000 on the stock market Friday, the lowest since November 15, according to Bloomberg data.

According to S&P, the outlook is negative for the company as its liquidity is likely to continue to be weak. It estimated that HAGL's capital expenditure for 2012 would be about US$142 million.

"We may lower the rating if HAGL's liquidity deteriorates further," the company said. "This could happen if the sale of iron ore or electricity is hit by weak demand, or the company's capital expenditure is more aggressive than we expected, particularly for investments in rubber plantations."

HAGL Chairman Doan Nguyen Duc said the downgrade was "understandable" given current economic conditions.

"I think the downgrade was because of the external business environment in general, not because any major problem with HAGL itself," Duc said in a report published by news website VnExpress Saturday.

He said the market slump has had a negative impact on his company's revenues. The property business accounted for 60-70 percent of its revenues in 2006-2007, but the ratio fell to only 40-50 percent in 2009-2010, he said.

Duc added his company has been working regularly with S&P on its ratings, indicating the rating announcement was not a surprise.

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