The government certainly appears to be making all the right moves on selling down its stakes in the country’s myriad SOEs. Last year it said it would set up a working group to help speed up share sales of SOEs and stem the trend of past IPO failures.
Now it is looking to finalise and release a list next month of the 280 companies which it will seek to monetise this year, the first time that the full list is being made public. The government believes that by revealing not only the names of these issuers but also the stakes on offer, it can pull in foreign interest.
The potential candidates could consist of many small to mid-cap firms that the government views as non-core holdings, according to Graeme Cunningham, head of Indochina research at KT Zmico Securities.
“The names that eventually come to light may not look amazing now, but they could become quality companies once they leave the yoke of government ownership and learn to survive without government protection,” he said. “Their hands were tied previously, while bad companies got coddled.”
The government is more keen now to make progress with SOE privatisation than it has been in the past 18 months, said Fred Burke, a managing partner in Baker & McKenzie’s Vietnam office. And as the economy enters what Burke calls a “sweet spot”, it has the best chance to make good on SOE reform.
“Vietnam is experiencing a mini-boom — the economy is in its best shape in years, inflation is under control and the currency is no longer volatile,” he added. “The present administration is also at its most powerful in two decades, having recently survived a no-confidence vote.”
The market is also showing renewed interest in Vietnam’s market and sentiment from foreign investors is upbeat. “Vietnam enjoys a pretty devoted following of funds,” Burke said.
Not realistic
Yet the reality for those betting on Vietnamese ECM is that the pending list is no silver bullet, and it promises no quick fixes for what ails the primary market.
“The list is not a game changer, as the government’s divestment goals have been known to the market for the better part of the past two decades,” said Burke.
The list of 280 companies and a year-end target implies that the state needs to monetise one SOE a day if it starts in April, which is by any measure an unrealistic goal.
“There's a genuine desire and effort from the government to speed up the process as much as possible,” said Michel Tosto, head of institutional sales at Viet Capital Securities. “But delays are inevitable given that current laws make the privatisation process rather lengthy from a procedural standpoint.”
One key roadblock preventing a wave of SOE listings is resistance from the SOEs themselves, explained Cunningham. This is because they are staffed by bureaucrats, many of whom will not embrace the kind of management and transparency required of private companies.
A good number of SOEs will also need their accounts dissected and cleaned up before they are ready for public disclosure. That is expected to deter the IPO process, which on paper takes around nine months to be completed, but can typically drag on for much longer.
Valuation is another issue. The government last year raised $51.3m by selling shares in Vietnam Airlines Corp, in a trade that failed to attract even a single foreign institution. Only two local investors signed up for 49m shares at an auction on the Ho Chi Minh City Stock Exchange.
Part of the reason for this was the government’s stand on pricing, bankers said. State agencies are often afraid of selling assets too cheaply, but that has only served to alienate foreign funds who see the government’s terms as overly aggressive.
The government had also floated only a 3.5% stake in Vietnam Airlines, which one banker said was almost meaningless as it would give institutions little say over how the company is run.
The IPO, in the works for six years, was even called a joke by the capital markets group of the Vietnam Business Forum in a meeting attended by the prime minister, according to sources who attended the event.
While that was a bruising episode, market watchers say they are looking forward to seeing two industry heavyweights in the SOE list. This includes VietJet Air, the second largest airline in Vietnam, and Saigon Beer Alcohol Beverage Corp, the country’s biggest beer producer.
The government is believed to be interested in paring down its stake in Saigon Beer, whose value is estimated at some $2bn, to 36% from 89%, possibly to a large Thai or Japanese brewery.
“What foreign investors are hoping to see, and the thing that would really attract attention for the list, is for it to have 10 big names with strong franchises,” said Cunningham.