Vinamilk stake sale set to flop after Vietnam imposes investment caps

By Reuters/Mai Nguyen   December 11, 2016 | 11:19 pm PT
Vinamilk stake sale set to flop after Vietnam imposes investment caps
An employee loads Vinamilk's products into a fridge at a shop in Hanoi, Vietnam November 21, 2016. Photo by Reuters/Kham
The market has been surpised by news that each investor could only buy up to 2.7 percent of the dairy giant's shares.

The Vietnamese government will likely fail to sell much of the 9 percent stake it has offered in dairy firm Vinamilk, one of its most attractive assets, with investors put off by highly restrictive investment caps and unfavorable market conditions.

The State Capital Investment Corporation (SCIC), which represents the government's 44.7 percent ownership in Vinamilk, took the market by surprise last month when it announced each investor could only buy up to 2.7 percent of Vinamilk's shares.

That has helped result in just two bids, worth a combined $500 million, by wholly owned units of Thailand's Fraser and Neave Ltd for the shares due to sold on Monday. One of the units is already Vinamilk's second-biggest shareholder with a 10.95 percent stake.

The muddled sale process has underscored Vietnam's relative inexperience and investor wariness about state control as the government seeks to push forward with a major privatization drive, one that already been hampered due to the small stakes on offer and concerns about vested interests.

Also detering investors has been a drop in Vinamilk's share price below the minimum bidding price set by the government of VND144,000. The stock has been hit by a sell off in Vietnamese shares as investors shun emerging markets amid uncertainties after the U.S. presidential election and a potential rates hike by the Federal Reserve.

Lessons learned

"The minimum bidding price of VND144,000 is actually not expensive for a strategic investor in Vinamilk, but the issues are the timing and the restrictions that come with it," said Nguyen Thanh Lam, deputy manager at Maybank Kim Eng Securities in Vietnam.

Vinamilk, Vietnam's top listed firm by market value, is seen as one of the country's most attractive companies as it commands around half of domestic market for dairy goods and has seen steady earnings growth.

Its shares have jumped 20 times in value since its debut on the Ho Chi Minh City Stock Exchange 10 years ago.

Other shares offerings coming up include an initial public offering of budget carrier VietJet Air, which is expected to raise up to $194 million, and the sale of government shares in Vietnam's top brewers Sabeco and Habeco.

Fiachra Mac Cana, managing director and head of research at Ho Chi Minh Securities, said the Vinamilk share sale did not necessarily bode ill for other asset sales.

"I feel that the sale is actually a good initial step with a few lessons learned as to how to do better next time," he said.

"In any event, the government hasn't been doing this for that long so in a way we should expect them to be learning as they go."

Related news:

> Vinamilk aims for $3 billion in annual revenue for 2017

> Vietnam says no specific buyer in mind for Vinamilk Dec stake sale

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