Fitch affirms Phat Dat’s issuer default rating at ‘B’ with stable outlook

October 26, 2021 | 09:23
Fitch assigned a long-term issuer default rating (LT IDR) of ‘B’ to Phat Dat Real Estate Development Corporation (HSX: PDR), reflecting the company's healthy financial indicators and strong growth in Vietnam.

The credit rating showcases Phat Dat's strengthened creditworthiness and increased transparency in line with international standards. This allows Phat Dat to diversify its financial sources and issue international bonds to meet its medium- and long-term capital demand in the next growth phase.

Headquartered in New York and London, Fitch Ratings has over 100 years of experience assessing and providing credit ratings to nations, enterprises, and investors worldwide. It is one of the three largest and most reputable credit rating agencies accredited by the US Securities and Exchange Commission. In this April, Fitch Ratings revised Vietnam's Outlook to positive with a rating at 'BB', reflecting Vietnam's resilience and the nation's efforts to maintain macroeconomic stability. Fitch Ratings assessed that Vietnam would see strong demand for residential properties in the medium term, supported by domestic economic growth, high urbanisation, rising incomes, and a growing middle-class population.

Fitch affirms phat dat’s idr at ‘B’; outlook stable
The rating from Fitch will help Phat Dat tap into international capital

The position of the leading property developer in Vietnam with excellent internal capabilities

Fitch's credit rating result reflects Phat Dat's market position as a leading real estate developer in Vietnam.

Thanks to the wholesale strategy, Phat Dat distributes all products to partners to expand market reach and reduce operating costs while enabling the enterprise to focus on property development. In addition, the wholesale model gives certainty to the company's cash flow and profit plans by offering controlled progress of inflow collection from wholesale buyers. In 2020 and 2021, with impressive business results amidst the COVID-19 pandemic, Phat Dat demonstrated the stability of its development strategy and operating model. In the third quarter of this year, Phat Dat recorded growth in business results with a pre-tax profit of over VND760 billion ($33.04 million), up 37 per cent on-year, boosting the cumulative pre-tax profit for the nine-month period to VND1.4 trillion ($60.87 million), up 55 per cent on-year.

In terms of financial indicators, the company’s financial leverage and indicators remained at a safe level. The debt-to-equity ratio decreased from 0.52x a year prior to 0.28x. Equity and total assets both increased sharply. Returns on assets and equity (ROA and ROE) reached 8.2 and 20.8 per cent, respectively, higher than the industry average. Advances from customers were twice as much as at the beginning of the year, reaching nearly VND1.58 trillion ($68.7 million).

Phat Dat's leadership believes the company can surpass its yearly plans with impressive business performance in the fourth quarter. Phat Dat is gradually realising its New Era strategy with a 5-year pre-tax profit target of VND14.27 trillion ($620.43 million), equivalent to a compound annual growth rate (CAGR) of 51 per cent for 2019-2023.

Sustainable development based on solid finances

According to Fitch's assessment, Phat Dat has shown remarkable growth through product diversification and market expansion. It has evolved from being a high-rise developer in Ho Chi Minh City to selling a mix of high- and low-rise homes and moving into second-tier cities. By embracing this strategy, Phat Dat is tapping into the most substantial benefits from the trending demand for residential real estate in potential markets in the next 5-10 years.

While amassing land banks in developing localities with good infrastructure and open policies to business, Phat Dat focuses investment in prime locations with connected transportation networks and projects compatible with market needs. Currently, Phat Dat owns a land bank of 768 hectares stretching across Danang, Binh Dinh, Quang Ngai, Ba Ria-Vung Tau, Binh Duong, Ho Chi Minh City, and Phu Quoc, among others.

Besides the strong growth in revenue, Fitch emphasised that Phat Dat's net debt-to-inventory ratio remained healthy at 28 per cent in 2020 and is expected to be 20-30 per cent in 2021-2023, well below the 40 per cent safe level required to maintain its credit rating.

The report also pointed out that Phat Dat had raised VND1.38 trillion ($60 million) by the end of September 2021 from the domestic bond market. As assessed by Fitch, given improved net inflows and low debt levels in the medium term, the company can fully tap into external capital sources to fund its land purchases in the coming years.

Accessing new capital and maintaining strong growth

The Asian Development Bank says Vietnam’s bond market is lacking reputable credit rating agencies to push operational efficiency in terms of investment supply and demand and to help investors be better aware of the financial position of bond issuers in the market. Thus, Fitch’s credit rating provides a transparent and objective account of Phat Dat's operations, responsibilities and commitments to investors, and legal compliance. The credit rating is also essential for Phat Dat to participate in the international bond market.

Phat Dat is targeting to meet its extensive capital demand to bankroll land bank expansion and project development by the issuance of international bonds. This would diversify the company's investment capital structure and ensure medium- and long-term stability for the next growth phase.

By Mai Dang

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