Timing, profits matter for state-owned privatizations, analysts say

By Mai Phuong, Thanh Nien News

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The timing of the privatization of state companies and the profit ratios from share sales that the firms can keep for themselves will decide the success of a rash of privatizations set to happen soon, analysts said.

A number of civil construction firms plans to make initial public offerings over the next three months. They include Cienco 6, which plans to offer 28.7 million shares collectively worth VND287 billion (US$13.6 million).

The Ministry of Transport has announced plans to sell shares from 11 of its firms soon. Among them is state carrier Vietnam Airlines.

The unnamed deputy director of a fund manager in Ho Chi Minh City expected more options in the market as a result of the IPOs, which would allow portfolio investors to be more selective in their choice of investment.

Low offering prices close to the par value of VND10,000 would then not be a decision-making factor for them but the sellers’ operation situation and brand image, the deputy director said, giving the example of construction materials maker Viglacera.

The firm last Tuesday could only sell 19.47 million shares at VND10,301 on average, a quarter of the amount it offered.

Although the planed privatizations are welcomed by both domestic and foreign investors, Phan Dung Khanh, chief of the investment analysis department at stock firm Maybank Kim Eng, suggested firms not rush to make IPOs at the same time.

Professor Le Dat Chi of the University of Economics Ho Chi Minh City shared the same concern, saying the global economy had yet to enter a period of stable recovery so firms would be unlikely to attract numerous capital flows from international investment funds at on time.

He also said the privatizations were an acknowledgement of the public sector’s enormous divestment from its ventures in non-core areas, which are often ineffective businesses and estimated to be worth a total VND17 trillion ($806 million), saying the process needs to be handled carefully.

Apart from directly offering shares to the market, firms could entrust the government’s investment arm SCIC with its state funds to take on the task, he added.

Chi also feared that the government’s seizure of profits, if any, from the share sales was among top issues raising concern among firms ahead of their equitizations.

Vietnam stipulates that privatization capital gains by companies have to be submitted to their parent corporations’ funds for enterprise development and, those by corporations, to the fund managed by SCIC.

He suggested the government allow firms to keep the sum for themselves since an increase in financial capability would make them more promising to investors.

Nguyen Van Thuan, dean of the HCMC Open University’s Finance-Banking Department, said the ratio of profits firms are permitted to keep would correlate with how much success they would have in their privatizations and how fast the process would happen.

The ratios should be made clear in firms’ privatization plans submitted to and approved by the government, and be made known to public as well, he added.

The Vietnamese stock market has been reacting positively to news about the upcoming privatizations since the start of the year.

The VN-Index benchmark of the HCM Stock Exchange has gained 16 percent as of February 25 from 2013-end.

Trading volume on that day reached VND2.4 trillion, however, lower than the four-year high of VND5.5 trillion ($260.7 million) on February 20, according to data compiled by business newswire VnEconomy.

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