Vietnam has an ambitious target of privatising 39 companies in the second half of 2017 after a slow start to the year saw only six state firms launch IPOs in the first half. The country has set itself a goal of paring stakes in 137 state owned enterprises by 2020.
Vietnam’s remaining divestment portfolio includes approximately VND90 trillion ($4 billion) in three subsidiaries of PetroVietnam, and a VND24 trillion unit under Vietnam Electricity. The government said 20 companies are currently in the valuation process and 14 others are going to finalise their pricing.
“If the processes are as reported, though it is an ambitious plan, we still expect that the government will achieve its plan. Moreover, we look forward to ‘key’ deals such as Binh Son Refinery, PV Oil, and Idico, which can attract investors,” commented Thien Bui, market strategist at Viet Dragon Securities Company.
The State Capital Investment Corporation has already submitted plans for divestment from Vinamilk, while brewers Sabeco and Habeco are expected to file their divestment plans within this month. All these transactions are expected to close in 2017.
The government is likely to sell its entire 82 per cent stake in Habeco in one go, while the selldown in Sabeco will be done in two tranches of 53.59 per cent and 36 per cent.
The plans for big corporations like Vietnam Post and Telecommunications (VNPT), telecom operator MobiFone, Vietnam National Coal – Mineral Industries (Vinacomin) and Vietnam National Chemical Group still remain rather opaque. However, investors can look forward to the the IPOs of PetroVietnam subsidiaries, which are confirmed to happen this year.
Following criticism over the tiny stakes on offer in previous IPOs, these units are planning to sell significant minority stakes, or even a controlling percentage, to strategic investors. While large corporations from Russia, Middle East and Asia have been in talks with PV Oil and Binh Son Refinery and Petrochemical, energy firm PV Power said its IPO had elicited interest from investment firms such as BNP Paribas, Standard Chartered, SembCorp, GIC, Nexif, and Keppel Infrastructure.
PV Oil, the sole crude oil exporter, has decided to up the strategic stake on offer from 40 per cent to 50 per cent, but has delayed its IPO that was earlier slated for June. The firm claimed its offer was attractive compared to Petrolimex, Vietnam’s largest petrol dealer with a 50 per cent market share.
In April this year, Petrolimex, which sold an 8 per cent interest to Japan’s JX Nippon Oil & Energy for 20 billion yen ($183 million) in 2016, went public on the Ho Chi Minh City Stock Exchange and has since then seen share price jump nearly 50 per cent.
Meanwhile, Binh Son will offload more than half of the state stake in its November IPO, and PV Power said it will sell 49 per cent of its shares in August in a deal worth $600-700 million.
Bui said these IPOs will generate opportunities for private investors who either have deep knowledge about the sectors these companies operate in or are already present in those sectors. These players, he said, will be better positioned to assess the valuation of these companies than financial investors as public information about the firms is often limited.
Becoming a public company and IPO are different processes in Vietnam. “Listing is also a criterion for investors to give their judgement on the ‘true willingness’ of the government (to privatise its businesses),” said Bui.
Financial investors might hesitate to participate in IPOs, given the country’s tradition of listing delays, he added.
Strategic investors, who are mandated by the local government to hold shares for the long term, are less likely to be concerned about the stock exchange listing. However, in the end, the attractiveness of any privatisation bid will depend on the companies’ selling price, percentage on offer as well as the management team.
In the past, private investors have proven to be a big plus for these state companies, helping valuations jump after IPOs. Pharmaceutical firms Traphaco (backed by Mekong Capital) and Hau Giang (backed by VinaCapital) have seen a constant upward trend in their stock prices since their debut in the 2010s.
Mekong Capital is now facilitating Loc Troi Group‘s listing in July at a reference price of VND55,000 per share. Meanwhile, the private equity firm has secured an agreement to exit the company at VND68,000 apiece, which values the firm at around $200 million – the largest capitalisation of any listed agriculture company in Vietnam.
Major state companies in Vietnam that will be privatised by 2020