Analysis: After years of delays, Vietnam's privatisation plans move up a gear

Fraser and Neave

08/12/2017 07:10

* Vietnam asset sales program has been source of frustration 
    * Now investors, bankers see some hopes of a pickup 
    * Sabeco sales, changed rules cause of optimism 
    * Process isn't for the fainthearted, is often unorthodox 
 
    By Anshuman Daga and Mai Nguyen 
    SINGAPORE/HANOI, Dec 8 (Reuters) - Foreign investors and 
bankers who flocked to Vietnam in the past two decades as they 
sought to cash in on government plans to sell state assets 
usually left frustrated as what was promised rarely 
materialised. But now they are finally seeing some modest 
grounds for optimism. 
    In a series of recent moves, the Vietnamese authorities have 
indicated they may be more serious about significant sales of 
government-owned companies. 
    Last month, they unveiled plans to sell a stake of up to 54 
percent, worth $5 billion, in the nation's biggest brewer in 
what is set to be the country's largest privatisation yet. 
    Giving up majority control of Sabeco - Saigon Beer Alcohol 
Beverage Corp  SAB.HM  is the brewer's full name - is a bold 
move in the communist state. 
    Hanoi has already changed the rules to speed up future 
privatisations from next year. Among the changes are the 
introduction of a book-building process for initial public 
offerings and an easing of its restrictions on strategic 
partners. 
    Vietnam is speeding up its privatisation drive as it 
grapples with a deteriorating fiscal picture, including a budget 
deficit and growing public debt at a time when it wants to 
devote more money to developing the nation's infrastructure. 
    Private share sales and listings are booming. Mall operator 
Vincom Retail  VRE.HM  raised $741 million last month in 
Vietnam's biggest equity offering, which attracted cornerstone 
investors such as Singapore sovereign wealth fund GIC and major 
U.S. fund manager Franklin Templeton. Total demand for the 
shares reached $2 billion. 
    Next year, the government has slated 181 state-owned 
companies to make divestments of stakes to investors and 64 more 
 for broader share sales through IPOs. Altogether, the 
government has said it wants to sell stakes in at least 533 
companies by 2020 through direct sales or IPOs. 
    And this doesn't include dozens of companies who were on the 
2017 list but won't get to market this year. According to the 
latest publicly available government figures, Vietnam had only 
managed 26 divestments in the first eight months of this year 
from a 135-long list that was planned. The 44 IPOs target this 
year is also likely to be missed, with only 38 IPOs slated to be 
completed by year-end, a government committee said. 
    "You have a lot of global asset managers, frontier market 
investors, hedge funds and others that want to capture and 
participate in the growth of emerging markets and frontier 
markets like Vietnam," said Jeffrey Perlman, Southeast Asia head 
of Warburg Pincus, which together with a consortium, sold part 
of its stake in Vincom Retail in the float. 
    "If you can provide them a conduit with which to do that and 
a business they can understand, they'll want to participate," 
said Perlman. 
    Vietnam's strong economy and roaring stock market underpin 
its appeal. 
    Over the past decade, the country has grown by an average 
6.1 percent a year, according to World Bank data and Vietnam's 
benchmark stock market index  .VNI  is up 42 percent this year, 
touching 10-year highs and making it Asia's best performing 
market.     
    And last month, Vinamilk  VNM.HM , Vietnam's largest listed 
company, bolstered hopes that the privatisation process is 
getting smoother. 
    A year ago, a planned sale of a 9 percent stake in the dairy 
group was cut sharply following a last minute rule that limited 
single bidders to 2.7 percent stakes each. 
    In November, though, a further share sale attracted 19 
bidders and allowed the winner, part of Hong Kong conglomerate 
Jardine Matheson  JARD.SI , to eventually build a 10 percent 
stake.  urn:newsml:reuters.com:*:nL3N1NM24D 
     
    STRONG STOMACH NEEDED 
    Still, the Vietnam market is not for the faint hearted. 
    Few bankers, investors or lawyers interviewed for this 
article expect the stop-start process of recent years - 
characterised by fickle policy making, vested interests and high 
valuations - to disappear overnight. 
    As an example, they point to the unorthodox way in which the 
Sabeco stake is being sold. 
    In spite of the sale being known about for months, a lack of 
detail about the size, price or structure until last week means 
bidders have been given just under three weeks to get their 
paperwork in order, including arranging deposits and guarantees 
and setting up onshore accounts. 
    Unlike the auctions familiar in developed markets, where 
investors are whittled down over several rounds and offers can 
be adjusted, Sabeco bidders need to submit a single price for a 
specific number of shares in a sealed envelope in one round. 
    "I have never seen a process like this for such a large 
sale. To bid all or nothing is very weird," said one banker. 
"People know this process is crazy. They are trying to solve the 
puzzle."  
    All bids will be ranked only by price, so the highest 
bidder's offer will be accepted in full, with remaining shares 
allocated to the next highest bidders regardless of how many 
shares they originally bid, the sale documents show. 
    In theory, for foreigners, the process means a bidder 
offering the highest price and seeking a 25 percent stake would 
get that, leaving a rival that offered a price just pennies 
lower but who wanted the maximum 39 percent, with just 14 
percent. Foreigners are restricted to 49 percent total ownership 
and already hold 10 percent, led by Heineken  HEIN.AS  with 5 
percent. 
    Since listing on the Ho Chi Minh exchange last December, 
Sabeco's share price has tripled. Its enterprise value is now 37 
times its core profit versus close to 15 for some of the largest 
global brewers, according to Reuters data. 
    The stocks rally has left Vietnam as one of the most 
expensive markets in Asia and dealmakers fear the current 
optimism could be at risk if prices began slipping. 
    "The market is frothy. And if it crashes, then everyone just 
goes on to the next thing. It could change very quickly,' said 
Tony Foster, Vietnam managing partner for Freshfields Brukhaus 
Deringer, who has worked in Hanoi for over two decades. 
 
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Vietnam's Vietnam speeds up asset sales as equity markets soar   
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 (Reporting by Anshuman Daga and Mai Nguyen; Editing by Jennifer 
Hughes and Martin Howell) 
 ((anshuman.daga@tr.com; +65 64035676; Reuters Messaging: 
anshuman.daga.thomsonreuters.com@reuters.net)) 
 
Keywords: VIETNAM PRIVATISATION/