Vietnam struggles to sell state companies, investors prefer private firms

According to the Ministry of Finance, the government has so far managed to privatize only 10 of the 64 companies earmarked to be sold this year.

State-owned Vietnam National Shipping Lines, or Vinalines, Vietnam’s largest state-owned shipping firm and port operator, said earlier this year that it sought to sell 488.82 million shares, a 34.8 percent stake, and raise around $210 million.

But it only managed to raise a meager VND54.3 billion ($2.33 million) through an initial public offering (IPO).

According to data compiled by Bloomberg, 17 auctions have been canceled this year, with their total deal value being a decade-high $401 million.

Vietnamese companies usually hold auctions to sell their shares.

But as Bloomberg pointed out it is not a case of investors no longer being interested in Vietnam: it is just that they find private firms much more attractive.

Vincom Retail, the shopping mall subsidiary of Vingroup, Vietnam’s largest private conglomerate, made the biggest ever IPO last year, raising around $700 million.

That record was then eclipsed in April this year by an offering from private lender Techcombank, which was also priced at the top of an indicative range and raised roughly $922 million.

A month later Vinhomes JSC, the residential property development unit of Vingroup, raised about $1.35 billion.

“Private company IPOs in Vietnam did well because there was more transparency in the process, management meetings, prospectus, book-building process,” Ruchir Desai, a senior investment analyst at Asia Frontier Capital Ltd. in Hong Kong, told Bloomberg.

“Some of the SOEs were loss making or had high debt levels, and they are also probably in sectors where there is not much interest.”

Vietnam's push to privatize state-owned enterprises (SOEs) is expected to move up a gear this year and the government plans to sell 6.5 times more shares than it offered last year, Deputy Prime Minister Vuong Dinh Hue said in an interview with Bloomberg Television last March.

The government had raised VND135.6 trillion ($6 billion) from selling shares in SOEs in 2017.

“We need more foreign investment but also want to attract good investors who can help our companies improve corporate governance,” Hue said.

The assets the government planned to sell “will include leading companies in energy, power and petroleum,” he noted.

The government wants to sell stakes in at least 533 companies by 2020 through private placements or IPOs.

Certain restrictions have reduced the appetite for even some of the more attractive state assets like dairy company Vinamilk, Vietnam’s biggest firm by market capitalization, news agency Reuters said in a recent story.

So the government has begun to ease restrictions like requiring strategic partners to be profitable for only two years prior to acquisition, down from three, and reducing their lock-in period to three years from five years.

It has set up a committee to oversee around VND5,000 trillion ($220 billion) worth of assets in companies managed by various ministries, whose vested interests often play a role in delaying privatization plans.