Government focuses on divestment in oil and gas sector

Monday, Feb 26, 2018 10:11

Vietnam Oil and Gas Group (Petro Vietnam or PVN) plans to reduce its ownership of PetroVietnam Gas Joint Stock Company (PV Gas) from the current 97 per cent to 65 per cent.

The divestment, scheduled for 2018-20, follows Government instructions for the company to pare its stakes in three State-owned companies to a minimum of 51 per cent by 2020, the other two being PetroVietnam Fertiliser and Chemicals Corporation (DPM) and PetroVietnam Ca Mau Fertiliser Joint Stock Company (DCM).

The PV Gas divestment is expected to attract many large investors who would be eager to buy into a company that reportedly contribute 30 per cent of PVN’s profits.

PetroVietnam, established in 1977, through its various companies including wholly-owned subsidiaries, now covers the entire gamut from oil and gas exploration and production to storage, processing, transportation, distribution, and services.

At an interaction with the media in late January PV Gas chairman Le Nhu Linh said the divestment would be done very carefully to identify appropriate strategic shareholders.

A detailed plan would be submitted to PVN and then to the Government for approval, he said.

He expected the stake sales to not only be hugely profitable for the Government but also secure access to advanced technologies and modern management from strategic investors from the west, Japan and South Korea.

By 2019 PVN will also have to entirely divest its stake in PVI Holdings, Phuoc An Port Investment and Exploitation Oil and Gas JSC, Green Indochina Development JSC, SSG Real Estate JSC, PetroVietnam Trade Union Finance JSC, PetroVietnam Construction joint Stock Corporation, and PetroVietnam Maintenance and Repair JSC.

In the first quarter of this year PVN successfully equitised three of its companies, PetroVietnam Oil Corporation (PV Oil), Binh Son Refining and Petrochemical Co Ltd (BSR) and PetroVietnam Power Corporation (PV Power), reducing its ownership to below 50 per cent.

The three companies made successful initial public offerings.

In fact, the BSR IPO netted the Government 60 per cent more money than it had expected.

BSR had expected to sell 241.6 million shares, or 7.79 per cent of its chartered capital, to the public at VND14,600 per share (US$0.64).

At this price, BSR would have been valued at almost $2 billion, making it the largest firm ever to hold an IPO.

A maximum of 49 per cent is expected to be sold to strategic investors three months after the IPO, with PetroVietnam retaining 43 per cent. Some 0.21 per cent of the shares will be offered to the company’s employees.

But to return to the IPO, the Government earned VND5.5 trillion ($244.5 million) through the sale. The highest bid was VND35,000 per share, the lowest was VND14,600 per share and the average was VND23,043, 56 per cent higher than the reserve price.

The auction saw 3,964 individuals and 115 organisations register to buy 652 million shares.

The Government raised VND6.99 trillion ($307.8 million) from selling 468.37 million shares of PV Power, or 20 per cent of its chartered capital through an IPO on January 31.

The average price was VND14,938, with the highest and lowest successful bids being VND28,000 ($1.23) and VND14,500 ($0.64).

The company is now valued at $1.48 billion.

PV Power’s success came as no surprise because it had been reporting profitable operations year after year, and the offer price was thought to be attractive.

Established in 2007, the company operates one coal-fired thermal power plant, three gas-powered plants and three hydropower plants. Its annual output is more than 4,208 MW, or 10 per cent of the country’s entire capacity.

Last year it reported net revenues of VND31.5 trillion, an increase of 12 per cent, and post-tax profit of VND1.9 trillion, a 25 per cent increase.

In PV Oil’s IPO on January 25 all 207 million shares, or 20 per cent of its chartered capital, were snapped up for a total of $190 million. The average successful bid was VND20,196 ($0.89) per share. The lowest was VND19,200, VND5,800 higher than the reserve price.

Foreign investors only bought 68.47 million shares.

The Government has instructed PVN to retain its current ownership in some other subsidiaries and associate companies such as PetroVietnam Technical Services Corporation, the Vietnam Russia Joint Venture Vietsopetro and PetroVietnam Drilling and Well Services Corporation.

PVN owns respectively 51.4 per cent, 51 per cent and 50.4 per cent stakes in them.

But despite all this, analysts said the PVN’s divestment and privatisation remain lower than expected due to several factors.

For one, its subsidiaries are too large for strategic shareholders.

For another, foreign investors expect transparent financial reports, which is lacking at many Vietnamese firms including oil companies.

Thus, for many, valuation is a difficult and slow process.

Oil companies have difficulty identifying the ideal management model after their IPO.

Central bank wary

In late January the State Bank of Viet Nam (SBV) instructed banks to limit lending to the real estate, securities and consumer sectors amid reports of alarming credit growth rates.

It told them to constantly monitor the progress of property projects and their developers’ financial health, and have measures in place to handle any defaults.

It said the pace of their stock market lending investment should be curtailed to mitigate risk.

As for consumer credit, banks have been told to evaluate and process loan applications carefully and ensure borrowers refrain from using the loans to invest in property or stocks.

Market observers said while it is not new for the central bank to instruct lenders to tighten credit for real estate and stocks, this is the first time it has told banks to monitor consumer credit quality.

Why?

Though consumer lending yields big profits to banks, the central bank is definitely worried about the high risks it involves.

According to data from the National Financial Supervision Committee, consumer lending has been expanding rapidly since 2015. Last year growth was a whopping 65 per cent, up from 50.2 per cent in 2016, and these loans accounted for 18 per cent of the total lending for the year.

Lending for house renovation and repairs accounted for 53.8 per cent of the total consumer credit, loans for buying home appliances for 15.3, and vehicle loans for 8.3 per cent.

VP Bank reported recently that its 2017 pre-tax profit of VND8.1 trillion included a full 50 per cent from FE Credit, its finance arm.

The latter’s credit growth was 39 per cent.

VP Bank CEO Nguyen Duc Vinh said consumer credit would keep expanding in the next 10 years.

According to Rong Viet Securities banks had accounted for $23.27 billion, or 87.6 per cent, of consumer loans in 2016. Finance companies had provided the rest. —VNS

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