How Vietnamese budget carrier VietJet prepares for a successful IPO

Image courtesy VietJet's official website

Vietnam’s bikini-imaged airline VietJet is mulling an overseas IPO within 2016, targeting Hong Kong or Singapore as the listing destination.

Although the IPO of Vietjet Air was reported to take place in early 2016, it is still a few months away, according to a source from the firm.

Official information will be disclosed in a few months, the source said when responding to our request for an IPO update.

The low-cost airline had earlier said it was seeking to sell 30 per cent of its shares in an IPO possibly in Hong Kong or Singapore, and valued the company at roughly $1 billion.

Four bankers have been mandated to facilitate the sale, including BNP Paribas, Deutsche Bank, JP Morgan and domestic investment bank VietCapital.

Vietnam’s stock market, with a relatively small number of favourable large stocks such as Vinamilk and Masan Group, is a tough frontier market to attract big investors.

The economy expanded to a five-year high of almost 6.7 per cent, while the benchmark VN-Index jumped 6.2 per cent from the end of 2015. However, Vietnam is still a small market for VietJet’s $300-million IPO ambition, its managing director Luu Duc Khanh earlier told media.

Although foreign ownership cap was promised to be removed, the process of issuing detailed documents for this new regulation has been slow. In addition, the recent IPOs of major corporations, such as the Airports Corporation of Vietnam and food processor Vissan offered only tiny holdings to overseas investors.

Thus, the offering of VietJet seems to go beyond the capacity of the local two stock exchanges.

The IPO, initially planned for 2015, is expected to fund the firm’s rapid expansion. VietJet currently operates 28 domestic routes and seven international routes. About 10 million passengers were carried in 2015, with an average load factor of nearly 90 per cent, according to the CAPA Centre for Aviation. Thus, the passenger traffic increased some 70 per cent in 2015. VietJet projects 50 per cent passenger growth in 2016 to 15 million, as it will add 12 aircrafts for a total of 42 within this year, according to the CAPA.

The private aviation company also has a Thailand-based joint venture called Thai VietJet. Thai VietJet has only operated limited charters since it launched operations in late 2014, scheduled services continue to be set back by delays.

How it paves the way…

To test international investor appetite, the budget carrier kicked off publicity and advertising campaigns to push its brand overseas.

The airline was also featured in a three minute video on CNN entitled “Vietnamese budget airline takes off”. In the new video, Khanh revealed his company had “over 40 per cent market share”.

Previously in March, VietJet CEO Nguyen Thi Phuong Thao emerged as the first woman billionaire to be, with the forthcoming IPO of the airline. The Bloomberg Billionaire Index calculated her net worth exceeding $1 billion following the future sale, making her Vietnam’s first woman billionaire and second billionaire after Vingroup’s chairman Pham Nhat Vuong.

Also read: VietJet sale set to create SEA’s first self-made female billionaire

The majority of her wealth is derived from her stake in VietJet and her holdings in Dragon City, a 65-hectare real estate development in southern Ho Chi Minh City. Thao reportedly holds 95 per cent of VietJet and 90 per cent of Dragon City’s owner, Sovico Holdings. In addition, she also has majority stakes in three resorts in Vietnam, the Furama Resort Danang, the Evason Ana Mandara Nha Trang and the An Lam Ninh Van Bay Villas.

Thao is vice chairman of Ho Chi Minh City Development Bank, which has total assets of about $4.6 billion last year.

Starting her career trading fax machines and latex rubber, she then shifted to sell other commodities and invested in banks before VietJet, which she has promised to turn into the “Emirates of Asia”.

But prior to all of this international coverage, Thao’s aviation company was known for the images of bikini-clad flight attendants on inaugural flights and “accidentally leaked” calendar photos of supermodels in VietJet swimsuit.

…hoping the IPO fully covered

Prior to VietJet, a lot of other Vietnamese businesses have planned overseas listing. Huy Vietnam, a restaurant chain operator that is funded by US and Hong Kong private equity firms, was said to file to an IPO in Hong Kong. However, not any information about the listing has been reported so far.

Vinamilk, the country’s largest company by market capitalisation, has not either been able to implement its overseas listing target after seven years of intention. Neither did Masan, Vietcombank and FLC Group.

A major issue along the way of overseas listing for Vietnamese companies is the legal loophole of the Vietnamese laws that regulate how a domestic business issue shares in a foreign stock exchange. There have not been detailed guidance even as the country allows its businesses to conduct IPOs in a foreign market.

In the case of VietJet, the company itself has a lot of growth potential. VietJet enjoys an already large domestic market, as tourism is increasing and the young population has higher demand for low cost airline tickets.

VietJet will likely surpass Vietnam Airlines in 2016 as Vietnam’s largest domestic carrier, CAPA said. The agency actually predicted VietJet’s market share had already picked up another 3 per cent to 43 per cent, surpassing the 42 per cent market share of Vietnam Airlines, while the state-owned carrier’s low cost airline joint venture Jetstar accounted for 15 per cent, by March 2016.

VietJet is also vying for expanding the international network, including the February launch of Hanoi-Taipei route, which will become its eighth scheduled international flight.

Faster international expansion is expected in the medium to long term as the domestic market will eventually become saturated, the CAPA said.

Also read: Vietnam: Bikini-clad carrier VietJet plans IPO in a bid to go global

But for now, it endeavours to beat Vietnam Airlines, which was already privatised and scheduled to sell a $108 million 8.8 per cent stake to Japan’s ANA Group, as the largest domestic carrier.

While it is unclear when VietJet will actually implement its well advertised IPO, Vietnam Airlines executives told Bloomberg that its shares will begin trading later in 2016.

The business report from CAPA looks very promising for VietJet. It predicts the low cost carrier would potentially attract foreign partners, those outside of SkyTeam in which Vietnam Airlines is a member. VietJet launched its premium product Skyboss in 2015, targeting the small and medium size corporate market. It is also expected to launch longer international routes through acquiring Airbus widebody aircrafts.

However, its expansion is not without competition, as Jetstar’s joint venture parners – Vietnam Airlines and Qantas have announced a plan to funnel $139 million into the budget carrier to more than double its fleet. The Vietnamese state-owned airline is even setting up another low cost airline joint venture with local lender and its strategic partner, Techcombank, to challenge rival VietJet.

Also read:

Qantas, Vietnam Airlines to pump $139m into Jetstar Pacific JV

Vietnam Airlines plans domestic unit to take on budget carriers

Japan’s ANA to buy 8.8% stake in Vietnam Airlines Corp

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.