S&P drops VNET outlook to negative

S&P said it revised its outlook for VNET Group Inc. to negative from stable and affirmed its B rating.

“VNET faces increasing execution risk to refinance its $600 million convertible notes,” the agency said in a press release. Climbing interest rates, a cautious investor base and a depreciating renminbi relative to the dollar will challenge the company. VNET is exploring options to refinance the notes that have a Feb. 1, 2024 put date.

“Over the next 13 months, we estimate the company will need to raise more than RMB 3.4 billion of additional capital to cover the notes. This considers VNET's RMB 3.5 billion unrestricted cash as of Sept. 30, 2022, repayment of $68 million convertible notes in February 2023, and the company's flexibility to scale down annual capital expenditure (capex) to about RMB 1.5 billion if needed,” S&P said.

VNET's track record of securing offshore financing and its proactive liquidity management support the rating. “VNET should therefore be able to raise new capital despite the challenging market conditions. Over the past three years, the company has raised $1 billion in convertible notes and preferred shares,” the agency noted.

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