Vietnam bullish on state divestment but slow pace dampens sentiments

Sabeco's Saigon beers are display for sale in a market in Hanoi, Vietnam April 17, 2017. Picture taken April 17, 2017. Reuters.

Vietnam has marked 2017 as an important point in the timeline for its privatisation process by announcing a number of major disinvestments. However, market observers have raised doubts over the implementation.

Earlier this month, the local government had said, in a document seen by local media, that it would sell 53.59 per cent in the country’s largest brewer Sabeco, to trim the state holding to 36 per cent, a deal that would potentially bring $3.85 billion to the coffers.

Meanwhile, Ho Chi Minh Securities Company revealed recently from a company visit that Carlsberg had expressed the interest to acquire at least 51 per cent of Vietnam’s second largest beer maker Habeco.

Habeco’s market share is now less than 20 per cent amid stiffer competition from Sabeco (holding over 40% share) and Heineken catching up with nearly 20 per cent.

By selling a significant stake to the Danish brewer, which is currently a 17 per cent shareholder at Habeco, it will probably be a good strategy to gain a rational price for the government, according to Ho Chi Minh Securities.

However, it is currently not feasible for Carlsberg to take over 51 per cent in Habeco due to the foreign ownership cap of 49 per cent.

The Vietnamese government has said to finish the first tranche of sale in Habeco by the end of 2017. The deadline for negotiation with Carlsberg is November 15.

Cees ‘t Hart, president and CEO of the Carlsberg Group, earlier this year said the negotiation for a significant stake at the Hanoi-headquartered company was a “hot, pretty complicated and cumbersome” process.

Meanwhile, Ho Chi Minh Securities Company predicts the full divestment process will still be taking several years to complete.

Delays in implementing the privatisation and sell-downs of state companies have been very typical in Vietnam with resistance from the government and interest groups associated with the companies, industry observers said.

In Vinamilk, for example, even as Vietnam had claimed to reduce its ownership in this cash cow enterprise in a quick and significant manner, the actual action has proven to preserve the veto power for the State Capital Investment Corporation.

After putting up 9 per cent Vinamilk stake sale late last year, only Thai-owned beverage firm F&N, which was already a major shareholder, purchased 5.4 per cent. Next month, Vinamilk will continue to sell a tiny portion of only 3.3 per cent, the unsold part of last December offer.

The same was applied to Vietnam Airlines IPO in 2014, when only two local banks subscribed to the majority of the 3.48 per cent shares and no foreign institutional investors made bids.

VinaCapital’s Vietnam Opportunity Fund, which has been investing in a spate of privatisation opportunities including the Airports Corporation of Vietnam, had earlier said it did not invest in the country’s two brewers as their stock prices were not growing at a justifiable rate.

Sabeco’s market value has more than doubled since its December 2016 debut. Shares of Habeco have also gained by more than 100 per cent in price after nine months and around 28 per cent since news that Carlsberg wants a big slice of the firm.

“How the entire beer market transforms will depend largely on the sale strategy of the government,” Do Phuong Thao, an analyst at FPT Securities Company observes.

Foreign brewers eyeing Sabeco and Habeco target not only the brands of the Vietnamese makers but a major part at their distribution strength to bring foreign products to the country, she opines. “Thus, it is also very much open to the possibility that Vietnam wants to protect local companies from the forays of overseas players.”

Vietnam’s beer market is expected to continue to grow at 6 per cent CAGR during 2015-2020, after a five year period of double digit expansion. The market capitalisation of beer stocks by July made up 9.23 per cent of the total, according to FPT Securities data.

The sophistication in consumption will create fantastic opportunities for beer companies, especially domestic firms, to renovate. This will improve market prospects as well as the performance of the companies.

In the short term, the selling price of the upcoming divestments might not be as high as the market has expected, according to analysts. However, the more significant engagement of overseas strategic investors is hoped to improve the beer companies’ value in the long term.

The benefit to the Vietnamese government is also obvious if it pushes up the sale as billions of dollars it mops up from these exits would help it manage state debt.

Vietnam’s trade deficit from January to July 2017 widened to over $3 billion. Public debt was VND2.56 quadrillion ($112.8 billion) in 2015,  equivalent to 61.8 per cent of Vietnam’s GDP while the cap is 65 per cent of GDP. The public debt in 2016 almost reached that limit.

Also read:

Vietnam moves one step closer to majority stake sale in brewer Sabeco

Vietnam’s PE landscape improves, SOE opportunities remain uncertain

Vietnam plans to offload stakes in top aviation firms by up to 30%

Vietnam to launch nearly 40 IPOs of state companies in 2H2017

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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).

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  • 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.
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