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Vietnam needs to fix its divestment process

Vietnam Hanoi 230px
By Jonathan Breen
11 Oct 2016

Vietnam’s equity capital markets is peculiar in that doing an IPO and listings are viewed as two separate events, leading to companies, particularly state-owned ones, often being in no hurry to start trading their shares on the stock exchanges. There’s no simple solution, but a shake-up of the market is well overdue.

A company in Vietnam can go public and wait for years to list. For example, the country’s biggest brewer Sabeco — formerly the Saigon Beer Alcohol and Beverage Corp — priced its IPO in 2008 but is yet to list its shares. It is the same story for Habeco, or the Hanoi Beer Alcohol and Beverage Corp, which also went public eight years ago.

There is some welcome news coming however, with both the privatised state-owned enterprises (SOEs) expected to finally list their stocks: Sabeco by the end of 2016 and Habeco by the first quarter of 2017. This will no doubt be music to the government’s ears as it desperately looks to divest its stakes in SOEs in the face of a growing budget deficit.

If there is any good time for the Vietnamese government to really push its privatised SOEs to list, now is it. Liquidity in frontier markets is often flagged as a concern, but that is waning as an excuse in Vietnam. Alongside domestic interest, there is foreign money also waiting to be put to work in Vietnam’s exchanges.

In addition, the government in September last year abolished the foreign ownership limit of 49% for public companies. This means that international investors can fully own domestic listed firms, except in certain sensitive sectors, with the move to open up the market to outsiders hailed as a milestone by the international investor community.

The interest is certainly there. The only thing missing at the moment is enough stocks to trade — a situation that the authorities need to rectify. Admittedly, the rules say that once companies have executed their IPOs, they need to list on the main exchanges within a year. But the problem stems from the fact that the fine for non-compliance is just D150m ($6,726) — a meagre amount for multi-million-dollar entities.

In addition, the main stakeholders in privatised SOEs are those linked to the state, which in most cases are unwilling to give up control of the company, say market watchers. For example, media reports allege that the Ministry of Industry and Trade managed to hold onto the government’s stake in Sabeco for eight years. GlobalCapital Asia has been unable to verify this independently.

It may be easier said than done, but Vietnam should streamline the IPO process by making the IPO and listing stages simultaneous. Or as an alternative, it can give firms the one-year time frame for listing, but impose hefty penalties on companies that break this clause.

If Vietnam is serious about boosting its capital markets and monetising its stakes in SOEs, it needs to get going sooner rather than later. The pipeline is robust, with large IPOs including from Vietnam Coal and Mineral Industries Group (Vinacomin), Ha Tinh Pharmacy and Kim Lien Food and Tourism Co on the cards this year. Here’s hoping the IPOs turn into proper listings. 

By Jonathan Breen
11 Oct 2016