Vietnam Airlines Corp.’s six-year wait for an initial public offering will end today without a single foreign institution buying into the deal, underscoring the challenges facing the government’s privatization program.
The Hanoi-based state-owned carrier expects to raise about $51 million selling 49 million shares at 22,300 dong ($1.05) each in an auction at the Ho Chi Minh City Stock Exchange. That’s equivalent to a 3.5 percent stake, valuing the company at about $1.5 billion. It’s received bids for about 48 million shares from two local institutional investors.
Overseas investors have bought a net $178 million of Vietnamese shares this year through Nov. 12, heading for an eighth year of inflows, and avoided state IPOs amid concerns stocks are illiquid and stakes held by non-government shareholders are too small to influence corporate governance. Lack of investor enthusiasm poses a challenge to Prime Minister Nguyen Tan Dung, who’s seeking to accelerate asset sales after excessive borrowing by state companies saddled the banking system with bad debt and helped drag economic growth to a 13-year low in 2012.
“Investors are still too cautious to get in from the start of some of these IPOs as they feel state-owned enterprises reform is coming along too slowly,” said Patrick Mitchell, Ho Chi Minh City-based head of institutional sales at VinaSecurities JSC.
Vietnam’s benchmark VN Index has advanced 20 percent in 2014, yet none of the 40 state companies that have sold shares this year are listed on local exchanges. Meanwhile, share prices of companies in other emerging Asian nations that sold stock for the first time this year have risen an average of almost 60 percent, according to data compiled by Bloomberg.
The government raised 3.2 trillion dong from 40 IPOs this year through Nov. 10, compared with a 4.9 trillion-dong target. It plans to sell shares of more than 400 companies by the end of next year.
Vietnam Airlines, which has been planning an IPO since about 2008, said it expects to list within a year of completing the equitization process, which it aims to finish by the end of March. It hasn’t decided which of the country’s two stock exchanges will carry the shares, Chairman Pham Viet Thanh said at a roadshow in Hanoi on Oct. 31.
The airline operates 39 domestic and 52 international routes with 83 aircraft, Saigon Securities Inc. wrote in a note dated Nov. 6. It flew 20.7 million passengers last year, 18 percent more than 2012, according to a Nov. 6 note from BIDV Securities Co., or BSC, a consultant in the IPO. Internal air travel is forecast to grow 15 percent a year through 2018, BSC said.
“I like Vietnam Airlines stocks as a growth play on Vietnam tourism,” Mitchell said. “You will start to see a lot more Vietnamese getting on planes for the first time in their lives as the middle-income segment rises.”
Still, investors may be discouraged by the small stake on offer, according to Attila Vajda, Singapore-based managing director at Project Asia Research & Consulting Pte. Even though the Vietnam Airlines offering is poised to be the country’s second-largest so far this year, it’s dwarfed by last month’s $400 million IPO of regional carrier Bangkok Airways, which operates 24 routes with a fleet less than a third of the size.
“With very little free-float, change might come to the company slowly with little influence from minority investors, while competition is increasing quickly,” Vajda said.
VietJet Aviation Joint Stock Co., the country’s only privately owned low-cost carrier, increased its domestic market share to 26 percent in 2013, a threefold increase from the previous year. Jetstar Pacific Airlines, a low-cost subsidiary of Vietnam Airlines, had 15 percent of the market, according to the Civil Aviation Authority of Vietnam.
The government set up an official working group last month to revamp the flagging IPO program amid growing criticism.
Nguyen Thi Hoang Lan, deputy general director of the Hanoi Stock Exchange, said in August that investors are being put off by the size of the stakes being retained by the government.
Le Song Lai, deputy general director of the State Capital Investment Corp. said the government needed to “narrow down and prioritize” the scheme after the state investment arm was asked to scoop up shares of failed company offerings.
State IPOs have also been criticized for lacking disclosure, Michel Tosto, head of institutional sales at Viet Capital Securities in Ho Chi Minh City, wrote last month.
“I am skeptical,” Tosto said. “Perhaps the government needs to hire professional securities firms to take charge of IPOs.”