Vietnam to rake in $7 billion from massive divestment push

By August 31, 2016 | 12:21 am PT

The lifting of the foreign-ownership cap could see money flooding in from overseas.

Prime Minister Nguyen Xuan Phuc has instructed the government's investment arm State Capital and Investment Corp. (SCIC) to continue selling stakes in 10 state-owned enterprises in a bid to boost the stock market and fund the country's widening budget deficit.

The companies include Vinamilk, the country’s largest listed firm, and beer giants Sabeco and Habeco.

The government currently owns more than 89 percent in Sabeco and 82 percent in Habeco, according to the Ministry of Industry and Trade.

Sabeco, or Saigon Beer Alcohol Beverage Corp, dominates the domestic market, especially in the country’s southern region, while Habeco, or the Hanoi Beer Alcohol Beverage Corp, ranks second after Sabeco. Both brewers are among the few state-owned enterprises that are performing relatively well.

The share sales in these state-owned companies are expected to help the Vietnamese government raise about VND150 trillion ($6.7 billion).

The government is planning to sell its 45 percent stake in Vinamilk after scrapping the long standing foreign-ownership cap on the stock, allowing foreign investors to own a 100 percent stake in the dairy company.

This could encourage parties from overseas to pay a higher premium than local investors to get their hands on the shares. The government’s 45 percent stake in Vinamilk is currently valued at about $4.5 billion on the stock market.

It is estimated that the government could rake in more than $5 billion after the State Capital and Investment Corp. successfully divests from 10 companies, including Vinamilk, technology giant FPT and insurer Bao Minh.

The divestments are expected to soar to nearly $7 billion following share sales in Habeco and Sabeco.

Thai Beverage PCL, Thailand's leading beverage conglomerate, has expressed interest in buying a stake in Sabeco for $2 billion. Heineken, Asahi and SABMiller have also been named as potential buyers of Sabeco.

The government has already approved a strategic partnership between Habeco and Carlsberg under which Carlsberg is allowed to acquire a 10 percent stake in the Hanoi-based brewer for an estimated $400 million.

This fresh privatization push comes at a time when the country is grappling with a widening budget deficit which is forecast to increase to 6.5 percent of this year’s gross domestic product.

Go-ahead for more transparent privatization of state-owned enterprises

After years of on-and-off efforts to privatize state-owned enterprise, the problem remains that the Vietnamese government wants to sell its assets for the best possible prices, but the lack of transparency has cut into the actual profit the government is supposed to earn from these sales.

Besides, the government can’t expect foreign investors to pay a high price for a stake in a company that they know nothing about.

Through transparent public tenders, company valuations will be done properly, Prime Minister Nguyen Xuan Phuc said at a meeting Monday.

He added that company valuations will be viewed separately from land ownership amid concerns that investors are interested in buying stakes in state-owned companies mainly to acquire land plots in some of the most sought-after locations in major cities.

Vietnam also expects special interest groups may be an obstacle as it accelerates the privatization of state-owned enterprises.

The government will divest further from state-owned companies and these divestments must be done in accordance with market forces, said Phuc, referring to it as an effective way to resolve possible friction caused by interest groups.

The Prime Minister has ordered Sabeco and Habeco to go public before the government makes any move to divest from the two brewers.

Vietnam is quickening share sales in state-owned companies because it needs the money to alleviate the budget deficit and reduce burdensome public debt.

However, in order to keep the stock market from overheating, the government has yet to indicate a specific timeline.

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