The record for Vietnam’s biggest ever IPO changed hands twice in two weeks in April. In a market that is finally delivering on its promise after disappointing investors for many years, first Techcombank and then Vinhomes launched successful, cornerstone-dominated deals.
Vietnam Technological and Commercial Joint Stock Bank, to give it its full name, raised $922 million before real estate company Vinhomes set out to raise $1.35 billion in a deal expected to price on May 7. Each also became the largest IPO (or in Vinhomes case, what it calls an IEO, for initial equity offering) in southeast Asia so far this year.
Techcombank, the only one of the two to have concluded its bookbuild when Euromoney went to press, was arguably more significant for its investor mix than its size.
Nguyen Le Quoc
The leads set out to build a big cornerstone tranche of guaranteed allocations and ended up putting just under $700 million of it in the tranche, with buyers including Singapore’s sovereign wealth fund GIC, Capital Group, Fidelity and local name Dragon Capital, itself thought to be investing partly on behalf of Norwegian sovereign wealth fund Norges Bank.
Alongside them came a public bookbuild of just over $220 million, which priced at the top of its range and was more than 10-times oversubscribed. The deal was lead managed by Morgan Stanley, Viet Capital Securities and Deutsche Bank.
“Conventional wisdom has been that investor demand from Vietnam comes only from Asia, and that only people in Singapore and Hong Kong understand it,” says a banker close to the deal. “But here just under 50% went to portfolio managers based in the US and Europe. A lot of investors are coming into Vietnam for the first time.”
They are doing so because of a macro story that finally appears to be delivering on Vietnam’s promise.
“The sentiment towards Vietnam is that it is a market that has missed the boat over the last 10 years,” says a person familiar with the deal. “While other countries in Asia have been doing well, Vietnam had an horrific credit cycle in 2012.”
A rally since last year has brought momentum without stretching valuations, he says.
Another banker says: “It still leaves Vietnam behind pretty much any other Asian market with similar demographics,” although in fact the MSCI Vietnam Index is up 70% in a year and trading at around 30 times 12-month trailing earnings.
Demographics are everything in the Vietnam story: 95 million people, most of them young, plus a trend to urbanization with a growing middle class. Techcombank, with a clear retail strategy, is seen as a good way of gaining exposure to the macro theme, with a management team with widespread international financial experience.
Chief executive Nguyen Le Quoc Anh has worked at Wells Fargo, McKinsey and T-Mobile in the US, for example, while director of transformation Ashish Sharma has worked at Standard Chartered and Goldman Sachs.
Important though it was, Techcombank was swiftly eclipsed.
The Vinhomes deal, representing the real estate arm of the Vingroup conglomerate, also had a heavy cornerstone tranche, accounting for 77% of the total, with Capital Group and Dragon Capital featuring again alongside investment management groups Avanda, Ivy, Mirae, Korea Investment Management and JF Asset Management.
GIC is in this deal too, having entered into a share purchase agreement on April 12 to purchase US$853.3 million of secondary shares; if that is factored in, the deal will raise US$2.2 billion. Morgan Stanley, Credit Suisse, Citi and Deutsche are global coordinators.
The previous record had been set only six months earlier with the $708 million IPO of Vincom Retail in October – once again with GIC as a cornerstone and with Citi, Credit Suisse and Deutsche at the helm.
One difference is that Vincom used structuring to allow it to settle in a matter of days rather than the usual six to eight weeks Vietnamese listings can require; Vinhomes appears to have used the same model, which is why boorkunners are calling it an initial equity offering instead of an IPO. Techcombank does not use this approach.
In Vietnam, shares are not crossed on the exchange on day one of trading; instead, one goes to the depositary to close the book and only then seeks special approval for listing from the stock exchange, a process which never takes less than a month.
“It used to be three months,” says one banker. “When VietJet came, it priced in December and listed in March. Things are improving.”
Techcombank has resolved to live with the delay and formal listing will not take place until June for a deal that priced in late April. It will be overtaken by Vinhomes, expected to list on May 17.
Despite the irksome nature of settlement, four or five large deals are expected during the course of 2018 in Vietnam. They might include banks.
Vietnam’s banking sector is mixed, with investors tending to favour the private – or joint stock – banks over state-owned banks.
“Private banks are now the main drivers of credit growth,” says Phuong Pham at Exotix Capital. Joint stock banks “are taking over the driving of credit expansion,” she says, targeting median growth of 30% for 2018 versus 15% for state-owned peers.
“In our view, the recent capital increases mean [joint stock banks] are better placed to tap into the current retail-oriented credit expansion cycle.”
However, she is cautious on the sector, rating only one listed bank, VPBank, a buy. And many investors have been burned before by believing the good times have arrived in Vietnam, only to find that they were rather fleeting.
It is worth noting that the cornerstone tranches in these deals, while full of strong names, are of a size that would be considered problematic in deals such as Chinese listings in Hong Kong.
“It looks like a potential issue,” says one banker close to the deal. “But keep in mind the negative perceptions in China come when inexplicable names take huge positions: a deal for an airline with an industrial cooler company coming in and taking a $500 million position you can’t explain with any reason.
“In these deals, every one of the investors is an international investment institution. There are no inexplicable dodgy names in here.”