The successful initial public offering of Petrolimex, Vietnam's largest gasoline supplier, has sparked hopes that plans to sell shares of state-owned enterprises, which have been virtually shelved for the past two years, will be dusted off and put on the table again.
Petrolimex on July 28 sold 27.43 million shares, or a 2.56 percent stake, at an average price of VND15,032. Bids totaling 30.09 million shares exceeded the number of shares on offer.
Analysts said in the context of a very gloomy stock market, raising VND412 billion (US$19.8 million) in the first issue was a big success.
"This was also the auction session that had the biggest share volume since the beginning of 2011," ACB Securities said in a report last week. "With the results, Petrolimex did manage the IPO more successfully than some other recent public offerings by state-owned enterprises."
Vietnam Steel Corp., the country's biggest producer, sold shares in June but raised less than the amount targeted. The IPO brought in VND395.46 billion ($19 million) on the sale of 39.15 million shares, out of 66 billion shares offered.
Mekong Housing Bank also missed its fund raising target last month. The state-owned lender sold only 27 percent of the 64.6 million shares on offer. Analysts said investors were put off by the bank's weak performance and unfavorable market conditions.
Many experts believe weaknesses in the stock market have been the main inhibiting factor in selling shares of state-owned enterprises that the government estimates make up about 40 percent of the gross domestic product.
This year alone, the benchmark VN-Index has declined about 20 percent. With most stocks plunging sharply, to as low as VND2,000 per share, it's not easy for companies to sell shares to the public for the first time at VND10,000 apiece.
Almost all of the 14 offerings of state-owned enterprises fell short of target sales. Together they could only sell 96.2 million shares, bringing in VND1 trillion ($48 million), the Thoi Bao Kinh Te Saigon magazine reported in late July.
But Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, told the magazine that local companies should not use the slide in the local market as an excuse to delay further their share sales, a process known as "equitization" in Vietnam.
Ngoan said amid the current downturn of the stock market, companies may have to accept low prices when selling shares. However, it's in difficult times like these that money really matters, he said.
So the real issue is whether state-owned companies want to go public, Ngoan said.
"Two different state-owned enterprises will be given the same treatment despite different business results. This mechanism does not encourage businesses to improve," he said.
Ngoan said studies conducted by the National Assembly, Vietnam's top legislative body, found that a lot of state companies did not pay attention to cost management.
"Many of them have abnormally large operating costs, which lead to high production costs and low profits for the state, but their managers are still satisfied," he said. "This is one of the reasons they don't care about equitization."
"It's necessary to boost equitization to diversify products for the stock market, and more importantly, to give them an incentive to increase their efficiency on their own and stop depending on the government," Ngoan said.
The Asian Development Bank, in its annual publication Asian Development Outlook for 2011, warned Vietnam that state-owned firms are "a drag" on the economy. "They absorb many of the available resources but their efficiency is much lower than among private firms," it said.
According to the bank, putting these firms on a commercial footing, exposing them to competition and holding them financially accountable would improve their efficiency.
A group of fund managers, securities companies and financial associations said at the Vietnam Business Forum held in Hanoi in June that the government needs to speed up the equitization process by setting a new roadmap with clear targets and timelines.
The equitization of enterprises should not focus mostly on the financial aspect but also other factors such as restructuring the state-owned enterprise sector, the group said. It also called for improved evaluation of companies to make offer prices appropriate to market conditions, improving the IPO process.
Over the past 20 years the government has issued six decrees concerning the process of selling shares of state companies.
The latest was issued last month in another effort to facilitate equitization, including a rule that allows businesses to evaluate their land based on prices set by local authorities. Previous regulations required the valuation to take into account the market value, which analysts said complicated the process and led to high offer prices.
But the analysts were not too optimistic with the new changes. They said until the government has given up their controlling stakes in state-owned companies, investors will not be interested in buying.
In the case of Mekong Housing Bank, for instance, no foreign investors have registered to buy the shares. The small stake offered is believed to be the reason that deterred investors as it means the government still wanted to maintain control of the small bank. After the IPO in July, the bank is now 3.95 percent owned by Vietnamese investors.
Even Petrolimex's sucessful IPO only sold a 2.56 percent stake in the company, signaling the government's aim to continue using the company and its position on the fuel market to regulate prices.
However, an analytical report in the Thoi Bao Kinh Te Saigon magazine said equitization has reached a point where even major state-owned enterprises of the country will be affected.
"It will be a more difficult decision for the government to give up control over these companies and it needs a long-term approach," it said.