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Investing.com -- Moody’s Ratings has upgraded the corporate family rating (CFR) of VNET Group, Inc. (VNET) to B2 from B3 on March 24, 2025, in Hong Kong. Alongside this, the financial services company also revised VNET’s outlook from positive to stable.
Shawn Xiong, a Vice President and Senior Analyst at Moody’s, attributes the rating upgrade to VNET’s ongoing expansion of its wholesale internet data center (IDC) business, which is thriving due to the robust demand for data center capacity in China. Xiong anticipates continued solid revenue and earnings growth over the next 12-18 months, aided by operational synergies from the strategic shareholder, Shandong Hi-Speed Holdings.
The stable outlook is based on the expectation that VNET will persist in executing its significant capital spending plan and expanding its wholesale IDC business, while maintaining a steady profit margin, good access to funding, and a sufficient liquidity buffer.
The B2 CFR reflects VNET’s strong position in China’s IDC market, its strategically located data centers with significantly expanded wholesale IDC capacity, a steady revenue growth record, diversified customer base, and established partnerships with leading cloud service providers and internet giants. The rating also considers the potential for increased funding access due to Shandong Hi-Speed Holdings Group Limited being a strategic shareholder.
Despite VNET’s rapidly growing but relatively limited operating scale, moderate financial metrics, and significant investment needs for capacity expansion over the next two years, Moody’s expects VNET to benefit from strong demand for data center capacity in China, driven by accelerated adoption of AI tools.
In 2024, VNET’s gross revenue grew by 11%, and its Moody’s adjusted EBITDA margin improved to 37%. The company’s strategy to expand and ramp up its wholesale IDC portfolio contributed to this growth. The gross revenue is projected to grow by 15%-20% in the next 12-18 months, primarily driven by growth in new wholesale IDC capacity and increasing utilization rate of its existing capacity.
VNET’s capital spending is expected to increase significantly to RMB10 billion-RMB12 billion for 2025, up from RMB3 billion-RMB5 billion spending in the last three years. A large portion of this capital spending is expected to be funded by incremental debt.
Moody’s forecasts VNET’s debt leverage, as measured by adjusted debt-to-EBITDA, will increase to around 6.5x for 2025 before improving to below 6.0x for 2026. The forecasted improvement in leverage will be driven by earnings growth coming from the continued ramp-up in its wholesale IDC business.
VNET’s liquidity position remains adequate. Its cash balance of RMB1.5 billion as of year-end 2024, together with projected annual operating cash flow and project financing, is expected to be sufficient to cover its planned capital spending and debts maturing in the next 12-18 months.
The company’s Credit Impact Score (CIS) of CIS-4 is primarily driven by the company’s financial policy to meet its investment needs, resulting in periodic high financial leverage due to debt-funded investment lagging the ramp-up of new wholesale IDC business, as well as its large financing needs.
VNET’s rating could be upgraded if it continues to execute on its strategy of growing its wholesale IDC business while maintaining stable cash flows from its retail IDC business, continues to increase its scale, improve profitability and reduce its debt leverage to around 5.5x, maintains an adequate liquidity position and debt service coverage ratio, and demonstrates prudent and consistent financial planning, all on a sustained basis.
Conversely, VNET’s rating could be downgraded if the company fails to maintain growth and profitability or increases its debt significantly, such that it is unable to maintain its debt leverage below 6.5x on a sustained basis, or if its liquidity position weakens due to weaker operating cash flow or aggressive capital spending.
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