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Rushed IPOs mean missed Vietnam state share sale goals
By Bloomberg -

Vietnam National Textile & Garment Corp., or Vinatex, has delayed an IPO at least twice

Before Waterway Transport Corp. held its initial public offering last month, analysts say the Vietnamese logistics company didn’t hold a single investor meeting or even put up a website.
The Hanoi-based company, also known as Vivaso, raised less than 4 percent of its 151.78 billion dong ($7.2 million) target. It’s among two dozen share sales this year of Vietnamese state-owned enterprises that have missed their targets and largely failed to generate interest from foreign investors. The Vietnamese government raised just 1.36 trillion dong from 24 IPOs through April 23, about 35 percent of the 3.9 trillion-dong it targeted for the offerings, according to data from the nation’s stock exchanges in Ho Chi Minh City and Hanoi.
The state is accelerating share sales as part of efforts to restructure the economy and lure more international investors to a $53 billion stock market that’s the second-smallest among 16 Asia Pacific countries tracked by Bloomberg, after Sri Lanka. Its plan to sell stakes in 432 government-owned enterprises by the end of next year is prompting some companies to rush IPOs without marketing them in advance, according to Project Asia Research & Consulting Pte.
“There is demand for good companies with good management and prospects, but there is no demand for a bad deal, or for a deal that nobody knows anything about,” said Attila Vajda, managing director at Project Asia, an independent research and consulting firm based in Singapore, focusing on Southeast Asia.
Missed targets
Prime Minister Nguyen Tan Dung approved a master plan in February last year to accelerate public share sales and spur state companies to focus on core businesses as the country’s economic growth slowed and its financial system wobbled under Southeast Asia’s highest level of bad debt. Dung reiterated the need to speed up the process this year after the World Bank said in December that progress on SOE reforms had been slower than expected.
Companies including Vivaso have been forced to find other ways to cut their levels of state ownership following a tepid response to their IPOs.
Vivaso raised only 5.5 billion dong from its offering March 19. It has since negotiated the sale of enough shares to cut the state’s holding to 49 percent, Pham Ngoc Dich, the company’s chairman, said by phone on April 18.
No listings
Civil Engineering Construction Corp. No. 5 raised about 14 percent of its 142.1 billion-dong target in an IPO last month, according to the Hanoi Stock Exchange. Viglacera Corp., the country’s biggest producer of building materials, sold a quarter of the 792.56 billion dong of shares it expected at its Feb. 20 offering. Only Viglacera attracted any foreign investors.
None of the 24 companies that held IPOs so far this year are trading on either of the country’s exchanges. By law, companies that sell shares to the public need to list within one year or face fines of as much as 150 million dong.
“Many companies were rushed to conduct IPOs, leaving investors little time to consider their investments,” Pham Luu Hung, Hanoi-based associate director at SSI Securities JSC., said by phone on April 23.
The government has been trying to boost competitiveness in the state sector, which the International Monetary Fund said last year is a key source of economic vulnerability. Leaders of the ruling Communist Party acknowledged in 2011 that unprofitable government-controlled companies had become a burden on the economy.
Bad debt
The government has been trying to conduct an IPO of Vietnam Airlines Corp. since at least 2010 amid intensifying domestic competition. Vietnam National Textile & Garment Corp., or Vinatex, has delayed an IPO at least twice, while Vietnam Mobile Telecom Services Co., known as Mobifone, hasn’t sold shares since saying in 2007 that it planned to do so.
“The government wants a faster recovery but has not been aggressive in restructuring the SOEs which have curbed Vietnam’s growth potential,” Anthony Nafte, Hong Kong-based economist at CLSA Asia-Pacific Markets said in a February report.
State companies “contribute about 30-35 percent of GDP but use about 55-60 percent of the capital, which leads to high levels of bad debt,” according to Tony Diep, Hanoi-based managing director at Indochina Capital. They have not performed “very efficiently,” he said.
The World Bank estimates gross domestic product will rise 5.4 percent this year, the same rate as 2013, which would be a seventh straight year of growth less than 7 percent.
Moody’s Investors Service estimated in a February note that bad debt at Vietnamese banks comprised at least 15 percent of total lending. The central bank disputed the assessment, saying non-performing loans had dropped to 3.63 percent at the end of 2013. Soured loans and restructured debt totaled about 9 percent of system-wide lending as of the end of 2013, it said on Feb. 22.
‘Very ambitious’
The government’s plan to sell stakes in more than 400 companies through the end of 2015 is “very ambitious” given the small amount of IPOs held so far this year and weak investor response, Indochina Capital’s Diep said.
Still, the Communist Party called the plan a “central political task” in February and said heads of state-owned companies who delay the process of stake sales could be disciplined or fired.
“This is a good idea in order to push them to do it quickly,” said Alan Pham, chief economist at VinaCapital Group, Vietnam’s biggest fund manager, which oversees about $1.6 billion of assets. “Prior to this year, the IPO process was very slow because the government was reluctant to sell state assets in a weak market, but now the market is doing well and this is the chance to really get the equitization program going,” he said.
Foreign flows
The benchmark VN Index (VNINDEX) has advanced 15 percent this year as the central bank cut the benchmark refinancing rate to a six-year low and consumer inflation slowed to less than 5 percent for the first time in more than four years. The measure dropped 0.1 percent as of 9:49 a.m. local time today.
Foreign funds bought a net $113.79 million of Vietnam stocks this year through April 25, down from $188.73 million in the same period a year earlier, according to data compiled by Bloomberg. That compares with a $3 billion inflow into Indonesian equities and a $693 million net foreign purchase of Philippine shares.
International investors are still waiting on the sidelines for “big names” to go public, according to Pham. Selling stakes in companies such as Vietnam Airlines, which may hold an IPO in September according to the government, Mobifone or Vinatex would help lure foreign capital, according to Diep.
“If too many large IPOs happen at the same time, participation of foreign investors is needed to match supply, given that domestic investors still feel fragile,” Vajda said.