VNET Shares Pop As Fitch Sees Robust Data Center Demand From Alibaba

  • Fitch Ratings has affirmed China-based carrier-neutral data center operator VNET Group Inc's VNET Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B+.' 
  • The Outlook is Negative, reflecting Fitch's expectation that VNET's 2021-2022 funds flow from operations (FFO) leverage will worsen to above 6.0x (2020: 4.2x), the threshold above which we lead to negative rating action. 
  • The proposed US dollar bond issuance with a part of the proceeds to fund capex accounts for the deteriorating FFO leverage.
  • The new bond issuance will stretch the company's balance sheet and slow the pace of deleveraging.
  • However, Fitch expects EBITDA growth will drive deleveraging in the medium term. 
  • VNET will benefit from robust demand for data centers from Chinese internet companies and public cloud-service providers like Alibaba Group Holding Ltd BABA (A+/Stable).
  • Price Action: VNET shares traded higher by 5.17% at $17.09 on the last check Friday.
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