VinGroup: Vinhomes uses very low debt (the debt-to-total asset ratio is only 11%)

As the number 1 real estate company in Vietnam with billions of dollars in revenue and profit per year, why can Vinhomes use very low debt?

Vinhomes' debt-to-total assets ratio stands at 11%, while in Novaland of similar size, it is approximately 30%.

Vinhomes JSC (belonging to Vingroup) currently holds the position of the number one real estate company in Vietnam. In the first 6 months of 2021, Vinhomes achieved revenue of over 41,000 billion VND. Profit after tax is 16,050 billion dong, equivalent to an impressive net profit margin of 39%.

In addition to impressive business performance, Vinhomes is also famous as a real estate enterprise that uses low debt, despite continuously investing in large projects that require large capital resources.

Even, the ratio of total debt / total assets of Vinhomes is gradually decreasing over the years to 10.9%. The net debt/equity ratio is only 8.9%.

Can be put on the scale with Novaland, the total asset size of this company at the end of the second quarter of 2021 is more than VND 171,500 billion compared to VND 210,850 billion of Vinhomes. However, Novaland's total debt/total assets ratio is up to 30%, which is 3 times higher than Vinhomes.

Vinhomes is currently borrowing nearly VND 23 trillion, of which two-thirds are through bonds issued domestically. The loans also have short maturities with an average maturity of 1.07 years.

Vinhomes is under very little debt pressure compared to other companies in the same industry. In the first 6 months of the year, Vinhomes recorded VND 1,207 billion in interest expenses and bond issuance. Looking at Novaland, financial expenses amounted to VND 2,283 billion, including: cost of loan arrangement and bond settlement in the period of VND 1,259 billion, interest payment on investment cooperation VND 716 billion, interest expense of VND 149 billion. VND, the cost of swapping interest rates of two currencies and the loss of exchange rate difference of VND 138 billion…

Meanwhile, revenue of Vinhomes in the same period was 5.8 times higher than Novaland, profit after tax was nearly 8 times higher.

So what's special at Vinhomes? Why is the largest real estate company in Vietnam able to use debt at a very low level?

To manage projects, meet working capital needs and finance various investments to grow according to the business plan, Vinhomes relies on a variety of capital sources, including: internal resources, financing. from outside through financial institutions, commercial banks, capital market offering and especially pre-sale of developing projects.

Besides the fact that Vinhomes has reliable access to capital from commercial banks due to its market leadership position, the prestige of the leadership and the position of the parent company Vingroup; This company mainly finance the investment and construction of its projects with pre-sales money.

Specifically, Vinhomes often requires customers to pay in advance an amount of about 30% of the value of housing products right at the time of signing the contract. Because of the upfront payment incentives, homebuyers typically make payments ahead of time in most cases.

In addition, Vinhomes also builds installment schedules in purchase and sale contracts with customers to ensure that the cash flow from installments is sufficient to meet the expected cash needs for land and construction fees until the date of discussion. deliver. This in turn reduces the need for other forms of external funding.

On Vinhomes' financial statements, short-term prepayment is a material item in the balance sheet.

As of June 30, 2021, this item recorded a value of more than VND 23,000 billion, accounting for a quarter of short-term debt. The value of Vinhomes' prepaid buyers has always remained high for many years, reaching billions of dollars.

Image from CafeF

In fact, Vinhomes is planning to issue more than 6,500 billion dong of bonds, including 4,370 billion dong in the form of public offering and 2,160 billion dong in the form of private placement.

Vinhomes also sold 60 million treasury shares at an average price of 108,637 VND/share, earning 6,518 billion VND.

In the coming time, Vinhomes plans to launch the big projects Vinhomes Wonder Park, Vinhomes Co Loa and Vinhomes Dream City… These are projects that bring back the knees after the success of Vinhomes Ocean Park, Vinhomes Smart City and Vinhomes. Grand Park.