Vietnam’s lacklustre startup IPO market seeks to pick up speed amid growing regional competition

[HANOI] DESPITE the twin challenges of a global slowdown of venture funding and a dismal local initial public offering (IPO) market, VNG Corp – Vietnam’s first recognised unicorn – began selling 35.8 million shares to the public in early-January at 240,000 dong (S$13.50) per share. 

That gave the gaming company a market capitalisation of US$364 million, a sixth of the US$2.2 billion valuation recorded in the financing round led by Singapore state investor Temasek Holdings in 2019.

The first week of the listing went by without a single transaction of its shares on the local bourse because there weren’t any selling orders. It’s quite different from how the firm and its shareholders had envisioned things to turn out, especially as VNG once harboured ambitions to launch its IPO abroad.

The establishment and major share transactions last year with an offshore entity, Cayman Islands-based VNG Limited, fuelled this speculation. As far back as 2017, VNG received support from the Nasdaq stock exchange for a possible US listing with unicorn-level valuations. There is still talk that VNG – which owns the messaging and social media app Zalo, which is widely used by Vietnamese – could explore a US IPO sometime in 2023.

It’s worth noting, too, that VNG’s local listing was not on Vietnam’s main bourse, but on UPCoM, a local market for public companies that have yet to be listed on the Ho Chi Minh City Stock Exchange (HoSE). The requirements and criteria for trading on UPCoM are not only much simpler, but the total market capitalisation of stocks listed there is currently only about a fourth of HoSE’s.

The lacklustre start aside, VNG’s executives are certainly hoping for a better outcome as far as the company’s share performance is concerned as they look to other major IPOs in the region for some inspiration.

Of late, South-east Asia has seen numerous billion-dollar public offerings of tech unicorns including those of Indonesia’s Bukalapak and GoTo.

A recent report by Deloitte showed that, as of last November, the region saw a 52 per cent fall in total IPO funds raised compared to the same period in 2021. Thailand and Indonesia accounted for 76 per cent of total funds raised across South-east Asia.

“We expect IPO activity to go through cyclical highs and lows, as the market re-calibrates from the pandemic mindset to ‘regular programming’,” Tay Hwee Ling, disruptive events advisory leader at Deloitte Southeast Asia and Singapore, noted in the report. “There is still room for high growth in South-east Asia as the region emerges from the Covid-19 crisis.”

As things stand, Vietnam is feeling the pressure as it seeks to put forth some top IPO candidates from a pool of about 3,000 startups nationwide, given the slow pace of the last few years.

The first significant listing was Yeah1 Group, a media and publishing company whose market cap reached 8.2 trillion dong (S$462.7 million) on its first day of trading on HoSE in 2018. Three years later, digital advertising services provider Clever Group made its debut on the same bourse at a market cap of 1.16 trillion dong.

Other Vietnam’s tech stars like e-commerce platform TiKi, mobile wallet Momo and e-commerce logistics startup Loship have all announced their intentions to go public for years, but none have come to fruition as yet. The option to offer shares onshore is not favourable for many, with local IPO regulations partly to blame.

According to Vietnam’s 2019 Law on Securities, a company applying for an IPO on the main bourse must be profitable in the previous two years and have no accumulated loss on the offering date. 

This sets a high bar for startups because most of them are burning money for research and development as well as customer acquisition and business growth. VNG, despite listing on UPCoM, still recorded a consolidated loss after tax of over 72 billion dong in the 2021 financial year and a cumulative loss after tax of 419.3 billion dong at its parent company in the first nine months of 2022. 

In comparison, the Indonesian stock exchange allows more flexibility in its listing rules, which require firms to meet certain levels of capitalisation value together with only one of these financial criteria – profits before tax, revenue, total assets, or cumulative cash flow from operating activities.

There are several schemes in place to help Vietnamese startups as they look to raise their game and competitiveness.

One example is the first IPO-focused accelerator programme that was launched in 2020 by Saigon Innovation Hub (SIHUB), an agency under the Department of Science and Technology of Ho Chi Minh City. The programme, which saw its 10th batch in 2022, caters to startups at the post-accelerator stage, offering hands-on training in areas like corporate management, profitability strategies, filing requirements and compliance.

“The question here is how we keep up the momentum by nurturing more early-stage startups to move up to Series B, C or D funding rounds and be ready for larger exits,” SIHUB chief executive and founder Tuoc Huynh said at a conference last year. “This requires a sustained effort, not an overnight fix.”

While observers are keeping an eye on VNG’s share price on UPCoM, some say that the path to list abroad might be a more viable option as it gives firms greater liquidity and diversified investor bases. 

Last December, Vietnamese electric vehicle maker VinFast filed for a US listing, which was once reported to help the company raise about US$2 billion.

Koichi Saito, the founder and general partner at KKFund, is among those that believes global money will flow to Vietnamese startups in the next few years.

He added that there is a “good chance” that more Vietnamese startups will be listed through a SPAC (special purpose acquisition company) in the United States in the next few years. They could also be acquired by companies in developed countries through mergers and acquisitions (M&As).

KKFund is backing four Vietnamese startups among its 33 portfolio companies across South-east Asia. It is also a seed investor in Veteny, an employee benefits platform based in Indonesia that raised US$21 million from its debut on the Indonesia Stock Exchange (IDX) last December.

Saito noted that although IPOs often have higher valuations and better returns for investors, M&As could be better alternatives for them to explore. 

“An IPO is not always the best exit for a founder. In some cases, it may be more beneficial for the founder to go public with the larger startup to maximise returns,” he said. “Unlike in Singapore and Malaysia, Indonesia and Vietnam have many startups that solve fundamental social problems. This is definitely a growth area, and IPOs and large M&As are likely to occur in this area in the future.”