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Vietnam comes to market |
Actual number of landmark listings successfully launched since then: zero.
Finally, though, it looks as if there is going to be some movement from Vietnam’s larger potential issuers. But it might yet be that the first deals of note appear not in Ho Chi Minh City but 600 miles to the south, in Singapore.
The domestic story has been one of dashed expectations. In May, Bao Viet Insurance, the state-run insurer, did make it to Vietnam’s informal over-the-counter market through a domestic auction, but the flotation didn’t go well.
Local regulations require all investors in an equitization (the first of two stages involved in getting a Vietnamese company onto the stock markets) to pay the same amount, with the sale price based on the average bid in a Dutch auction. Unfortunately, some rather exuberant retail investors bid the equivalent of about 25 times book price, bringing the average price for domestic investors out at about twice the level that more fundamentals-driven foreign investors had been bidding at. Consequently, when the shares began trading on the OTC market they fell sharply, prompting many investors to give up the 10% deposit they had put down for their shares, leaving them unclaimed.
With a quarter of the shares thus abandoned, a second auction was held to place them in July but since the minimum price had to be at least at the level of the first auction, there was little reason to participate; barely a tenth of the available shares were taken. HSBC has subsequently taken a 10% stake in the insurer but talk of an international offering has gone quiet. And the company is still not listed on any formal exchange, although it’s expected to be trading on the Hanoi bourse by the end of the year.
The Bao Viet deal has, though, cleared the way for the next in the queue, the most eagerly awaited of them all. The Bank for Foreign Trade of Vietnam (more widely known as Vietcombank) was meant to list in August but didn’t get government approval until September. It has been reported to be planning an IPO this month but at the time of writing had still not formally selected a foreign strategic partner, a key part of the equitization process. Credit Suisse is advising Vietcombank and has declined to comment but it is understood that a more realistic expectation is that the domestic auction and foreign strategic sale should be completed by the end of the year – still one step short of the company being listed on a regulated exchange, which should follow several months afterwards.
Instead, there seems to be more progress at the handful of Vietnamese companies that have been talking about listing abroad. In September, one of the country’s most established brokerages, Saigon Securities, said it had signed up to list in Singapore, probably early next year. “Saigon Securities is likely to be a stock that is well received by foreign investors,” says Geoff Lewis at JF Asset Management in Hong Kong, which runs a Vietnam fund. “The stock is a direct beneficiary of the recent surge in trading volumes and is an easy way for a foreign investor to gain exposure to the market.”
Dairy group Vinamilk is likely to follow it to Singapore, and other companies believed to be at least considering a Singapore listing include IT company FPT and Vietnam Airlines. Vietcombank itself is expected to follow its domestic auction, once it gets off the ground, with a Singapore listing.
This might end up being the most prudent solution for the foreign fund managers that have allocated billions of dollars for investment in Vietnam and have nowhere practical to put it. Valuations in the markets are in some cases absurdly high after the Ho Chi Minh City market gained more than 150% last year, although it has come off a March peak. “Vietnam is a growth market and the forward PE of around 40 times and projected earnings growth do not look out of line in comparison with other Asian growth markets such as China,” argues Lewis. But valuation isn’t the only problem: many blue chips are at or close to limits set by the state on foreign ownership in domestic stocks. About $4 billion is believed to be sitting on the sidelines waiting for the expected big flotations in order to find a worthwhile place to deploy it.
Besides, even in the big domestic flotations there has been little interest in allowing foreign money to get in. Bao Viet involved about a 2% allocation to foreign institutional investors in its domestic auction and Vietcombank might end up offering the same amount.
The Singapore listings raise an interesting sub-plot. Ever since China announced restrictions on its companies raising capital overseas, in an attempt to boost its own domestic A-share markets, stock exchanges such as Singapore and Hong Kong have been clamouring to find other countries to foster relations with in order to ensure a steady stream of new issues from overseas. This is particularly important in tiny Singapore, where the pipeline of domestic issuers is finite – already more than 30% of issuers on the main board are non-Singaporean.
Both Hong Kong and Singapore are known to have targeted Vietnam as a source of listings, and it appears on this evidence that Singapore has gained the most ground. “Vietnam is a target market for listings given its growing economy and demand for offshore capital,” says Lawrence Wong, head of listings at Singapore Exchange. “We have received indications of interest from Vietnamese companies and their advisers, and we will continue our efforts in Vietnam.”
While foreign exchanges make headway, many Vietnamese companies wait in the queue for long-expected domestic listings, among them Mekong Housing Bank, Industrial & Commercial Bank, Mobifone, Saigon Beer, and Bank for Investment and Development of Vietnam. For foreign fund managers, they can’t come quickly enough.
