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Vietnam IPOs: The promise in being private

By Jonathan Breen
08 May 2018

Vietnamese conglomerate Vingroup is on course for a second spin-off using a novel private placement-style structure, after pricing Vinhomes’ D30.7tr ($1.35bn) listing this week. The structure offers a tempting route for potential issuers in the country’s unpredictable equity market.

Investors from every leading market have had their eyes glued to Vietnam this year. The country’s benchmark index — the Vietnam Ho Chi Minh City Stock Index (VNINDEX) — shot up around 20% in the first quarter, making it one of the world's best-performing stock markets.

But the party stopped almost as soon as the quarter came to a close. After peaking at a 20.9% year-to-date rise on April 9, the index had tanked 11.5% by Tuesday. Usually after a violent market fall, primary equity market business gets tougher. However, in this instance, Techcombank was able to pull off a $922m record-breaking IPO in the following days.

What to make of all this? Did Techcombank’s deal prove that primary markets would ignore any nervous jitters in secondary? There’s a reason to be sceptical. Techcombank is not just one of Vietnam’s biggest private sector banks, it also boasts substantial foreign ownership already. Although HSBC dumped its holding amid a scale-back of non-core assets last year, Warburg Pincus has quickly taken its place. Those without Techcombank’s strengths may struggle to follow its lead.

This is where Vingroup comes in. The conglomerate, which owns everything from schools to holiday resorts, has proved a remarkably savvy navigator of Vietnam’s labyrinthine ECM market. That makes it worth taking a close look at exactly what Vingroup has chosen to do for a glimpse of the best approach for other, smaller issuers hoping to tap the country’s equity market.  

The conglomerate skirted Vietnam’s painfully slow primary market last November when it used an initial equity offering (IEO) to spin off Vincom Retail, raising D16.1tr. The structure allowed Vincom to list within two weeks of pricing, down from the several months it takes most issuers. The key is getting investors to agree to a share transfer after trading starts rather than before.

The downside to this is that retail investors are left out of the process. The obvious upside is that the relatively rapid execution means investors don’t have to wait around for months, watching the zig and zag of the markets and wondering when they will be able to start trading their shares. That, in turn, should boost demand.

The conglomerate returned with the same structure this week, pricing a private listing by Vinhomes at the top of guidance after strong early demand. In doing so, it proved that the IEO is a format that has plenty of room to grow in Vietnam.

So why aren’t others rushing to follow suit? No issuer apart from Vinhomes has attempted an IEO in Vietnam, even on a smaller scale.

The most obvious reason is that, among the handful of IPOs closed in Vietnam this year, most were government sell-downs. Vietnam’s ruling Communist government has a rather tenuous sense of efficiency, preferring the slow (and occasionally steady) approach.

For other private sector companies, however, IEOs are a perfect fit. 

By Jonathan Breen
08 May 2018