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Reality bites in Vietnam's march towards privatisation

The government is proceeding slowly amid uncertain market conditions and companies ill-prepared to practise transparency. But optimism is palpable.

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Much is expected of the Vietnamese bourse, which became South-east Asia's top market for IPOs in 2018, said the consultancy EY. Vietnam took the honours by raising US$2.6 billion from just five IPOs, primarily because the government began pushing for the privatisation of state-owned enterprises (SOEs).

SIGNALLING the caution with which the Vietnamese government is moving in its privatisation programme, only a few large-cap state-owned companies are planning to stage initial public offerings (IPOs) or to return to the market to raise fresh funds on the Ho Chi Minh Stock Exchange (HoSE) this year.

Out of the 500-odd state-owned enterprises (SOEs) participating in the privatisation process, the government intends to retain 100 per cent ownership in at least 100 such companies in sensitive areas of the economy, such as defence and public security.

Major SOEs slated to be listed on the HoSE this year are Mobifone, Vietnam Posts and Telecommunications Group, Saigontourist, and Agribank.

The listings and privatisations were supposed to have happened more quickly. But a mood of realism and tentativeness has taken over, stemming from the unpreparedness of major companies to practise transparency, and uncertain market conditions.

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There are three listing options in Vietnam - the HoSE, the Hanoi Stock Exchange (HNX), and the Unlisted Public Company Market (UPCoM), which is like a kindergarten for companies that are not fully prepared to list but can still raise funds on the unlisted market until they graduate to the two main exchanges.

The UPCoM is a particularly attractive mezzanine for large state firms contemplating listing on the main markets. Some 797 companies were trading on the UPCoM in November last year, exceeding the total number of listed companies on the HoSE (370) and HNX (374). Several large-cap companies, including SOEs that have partially privatised, have moved to UPCoM to quickly make their shares tradable.

In a encouraging sign last month, state electricity firm PetroVietnam Power, a subsidiary of PetroVietnam, made its debut on the HoSE, with its market capitalisation reaching US$1.57 billion at the end of the trading day. Last December, the company cancelled its trading on UPCoM.

In January last year, the government raised 6.997 trillion dong (US$308.1 million) by selling off 20 per cent of PetroVietnam Power at its IPO on the UPCoM- slightly exceeding the target to raise US$297 million from the sale, in which overseas investors bought 12.15 per cent of the company. That same month, the government raised US$429 million at IPOs of Binh Son Refining and Petrochemical Company, and Petrovietnam Oil Corporation (both are subsidiaries of PetroVietnam).

It is remarkable that PetroVietnam was able to conduct these IPOs at a time when the company is embroiled in a corruption scandal. Some of its executives are on trial or have been sentenced; a former member of the politburo of the Communist Party of Vietnam, Dinh La Thang, has been jailed.

The IPOs have delivered mixed results. State-owned rubber producer and exporter Vietnam Rubber Group delivered "the most disappointing" IPO in February last year, the Vietnamese media reported, raising US$57.7 million at the HoSE, but the proceeds were far lower than the state's expectations of US$273 million. In contrast, the IPOs of Binh Son Refining and Petrochemical Company, PetroVietnam Oil and PetroVietnam Power just the month before, were successful.

TOP MARKET FOR IPOs IN S.E. ASIA

Much is expected of the Vietnamese bourse which became South-east Asia's top market for IPOs in 2018, said the consultancy EY. Vietnam took the honours by raising US$2.6 billion from just five IPOs, primarily because the government began pushing privatisation of SOEs such as PetroVietnam Power, Viet Nam Rubber Group and Viet Nam Southern Food Corp. Thailand came second, raising US$2.5 billion from 20 listings.

With strong economic growth forecast at 7 per cent in 2018, Vietnam is expected to remain at the top of the South-east Asian IPO league table, as more state-owned companies wait to go private.

The market regulatory authority in Ho Chi Minh City has approved the listing of the country's largest ceramics and tile producer, state-run Viglacera, with more than 448.3 million shares.

The national flag carrier Vietnam Airlines, now listed on UPCoM, has also done the paperwork to list all of its 1.4 billion shares on the HoSE this April. A few such upcoming large-cap listings will boost not just the trading on the market, but also the prices of the companies' shares, and may attract even more foreign capital. The Vietnamese government holds more than 80 per cent share in the airline, and Japan's ANA Holdings controls 8.77 per cent. Its shares are trading at 34,200 dong each on the UPCoM.

It has been noticed that while state firms' share prices rose on debut on the HoSE last year - such as HDBank, Techcombank, Saigon Real Estate JSC, residential developer Vinhomes and Vincom Retail - their performance afterwards was lacklustre.

Looking back at the recent past, the first quarter of 2018 was a perfect time for companies to list on the southern bourse as the benchmark VN Index touched a record high of 1,204.33 points on April 9.

The rest of the year was clouded with uncertainty over the global economic slowdown and the US-China trade war, which dampened the performance of Vietnamese-listed companies. The benchmark VN Index ended 2018 at 892.54 points, down 9.31 per cent from the end of the previous year and down 26 per cent from its record high in April. Companies listed on the HoSE saw their share prices decline; some of them postponed their listing plans.

As investor confidence remains on tenterhooks over instability in Europe and the continuing US-China trade tensions, the companies biding their time on the UPCoM may have to wait longer before listing on the main markets.

But overall sentiment remains optimistic. The benchmark VN Index could rise to 1,049 by December 2019, rising 18 per cent over the previous year, and could possibly double over the coming three to five years, going by some forecasts. The positive estimates are based on the country's long-term economic growth, which has been expanding more than 5 per cent a year since 2000, and its low valuations. The VN Index trades at about 14 times estimated earnings for the next year, down from more than 20 times in April last year.

Yet, the government is cautious in its approach. State firms must learn to swim in the shallows of the market for unlisted companies before being sent into the deep end of the main markets.

  • The writer is the editor-in-chief of The Calcutta Journal of Global Affairs.

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