The race to build up stakes in Vinamilk, Vietnam’s largest listed company, is likely to see Hong Kong’s diversified group Jardine Matheson square off against Singapore-listed Fraser and Neave (F&N).
Jardine Matheson spent more than $1.15 billion to acquire a 10 per cent interest in Vinamilk within a week, a sign that it could target a significant minority stake in the Vietnamese company.
Jardine Cycle & Carriage (JC&C), the automotive subsidiary of the Hong Kong-headquartered group, first bought a 5.53 per cent stake in Vinamilk for an aggregate cost of $616.6 million. The purchase included a 3.33 per cent stake sold by the State Capital Investment Corporation (SCIC), which remains the largest shareholder at Vinamilk.
JC&C has made additional on-market transactions to solidify its ownership to around 10 per cent, according to the company’s latest announcement.
F&N remains Vinamilk’s biggest overseas investor with an 18.7 per cent stake. The beverage firm, controlled by Thai business magnate Charoen Sirivadhanabhakdi, initially invested in Vinamilk in 2005 and bought a further 5.4 per cent stake in December last year from the state shareholder.
After 12 years building up its presence in the $11.7 billion dairy firm, F&N might be looking at a controlling interest of above 51 per cent, according to Kevin Snowball, CEO of PXP Vietnam Asset Management.
However, given the aggressive purchases by JC&C, he said: “If Fraser and Neave has intentions to increase their stake, they have to be realistic about price, which they haven’t been for several months, and do something soon.” He predicts JC&C will continue to rev up its investment in Vinamilk until it gets above a 20 per cent ownership.
The twist in the tale could be the government’s reluctance to cede control in a cash cow. With a 36 per cent stake, SCIC still holds the veto right in shareholder meetings.
Meanwhile, the state fund will not dispose of these shares anytime soon, even as Vietnam plans to divest from over 400 state companies by 2020.
“Once they (JC&C) have bought another 5 per cent it will be impossible for Fraser and Neave to buy 51 per cent without the government selling their stake. I do not think this story is over yet,” Snowball said.
Rather than being limited to automobile business, JC&C could become the investment vehicle of Jardine Matheson in Vietnam, which also has interests in several other businesses, including Refrigeration Electric Engineering Corp and Truong Hai Auto.
“The taking of this aggregate Interest in Vinamilk is in line with JC&C group’s strategy of investing in market-leading companies in Southeast Asia, and increasing JC&C’s exposure to the Vietnamese economy. Consideration will be given from time to time to making such further investments,” JC&C said in its announcement.
Making divestments look good
“Vinamilk is, in our opinion, a superior company on virtually any metric,” said Snowball.
Vietnam is hosting roadshows abroad to find international buyers for its top beer maker Sabeco, another hectic privatisation story. Since its listing debut in December 2016, Sabeco’s stock price has gone up 3x to be the most expensive on the market.
Vinamilk is much cheaper than Sabeco from a valuation standpoint, according to PXP Vietnam.
VinaCapital, one of Vietnam’s major fund managers, has also asserted that Sabeco shares were not growing at a justifiable rate.
In the effort to privatise major state-controlled companies, Vietnam will see a series of other state capital sell-downs, which are potentially good opportunities for overseas investors.
In order to make these divestments look promising to price-conscious buyers, Vietnam could shorten the delay between IPO and listing, as well as remove the barrier in terms of requiring bidders to make a 10 per cent deposit in the local currency.