Government sell-off sends shares buzzing

Monday, Oct 26, 2015 08:32

Compiled

On October 20 dairy producer Vinamilk (VNM)'s shares rose for a third straight day after the company said that the Government would sell its controlling stake to foreign investors.

The share jumped 4.7 per cent to a record VND111,000 (US$4.96), the highest ever since the company listed on the HCM City exchange in 2006. It was also the biggest driver of the VN-Index on October 20 with its weight of 11.6 per cent.

The surge in the VNM share price is one of several fallouts of the Government's recent decision to sell its stakes in some giant listed firms.

On October 13 sovereign fund the State Capital Investment Company (SCIC) announced the plan to divest the entire state stake in 10 major companies in various industries.

They include Vinamilk, FPT Telecom, Binh Minh Plastic Company, Tien Phong Plastic Company, and Bao Minh Insurance Corporation.

The stock markets have reacted positively to the news and the trading volumes of VNM and FPT have since increased by 700 per cent and 1,000 per cent.

Besides VNM, the shares of some other companies too shot up, with Tien Phong climbing to VND53,300 ($2.38) and Binh Minh to VND120,000 ($5.37).

The divestment plan indicates the government's determination to speed up the snail-paced progress of equitisation.

Nguyen Van Thuan of the Finance and Marketing University said the divestment would provide the Government with a large amount of money to handle public debts.

There has been speculation that the $3 billion the disinvestment could fetch might be used to offset the growing budget deficit.

But government officials speaking at Vinacapital's 2015 Investor Conference in HCM City last week categorically denied this.

The Ministry of Finance plans to issue a $3 billion overseas bond this year, meaning there is little need for that, they said.

The National Assembly Committee on Finance and State Budget has already agreed with the Government's decision to use the money from the sale of the stakes to invest in development projects, especially some key infrastructure works.

Another beneficial fallout of the divestment will be a surge in free float of stocks in the market, whose liquidity will go up sharply. For many foreign investors, the lack of liquidity in the Vietnamese markets has for long been a vexing problem.

The companies in which the Government plans to sell its stakes too stand to benefit.

Analysts said their management is likely to improve considering the public sector is not really known for efficiency.

The companies would lose many of the privileges that come with being State-owned and necessarily have to be proactive about becoming more competitive, they said. Of course, it is possible when told to "swim or sink", some might end up doing the latter.

The timing is critical since Vietnamese companies are set to face vicious competition following accession to the Trans-Pacific Partnership (TPP) and several free trade agreements and the formation of the ASEAN Economic Community in December.

State firms late to sell stakes

Under the Government's State-owned enterprises (SOEs) restructuring plan, which got underway in 2012, SOEs will have to sell their stakes in banks and financial institutions by the end of 2015 and focus on their core businesses.

With only two months to complete this task their progress remains painfully slow as many have hit hurdles.

A few have been lucky. Coal mining company Vinacomin sold its 4.09 percent stake in SHB, Vinatex pulled out of Navibank, the Vietnam Rubber Group raised VND335.78 billion by selling is shares in SHB, and Vietnam Airlines sold out its 2.72 percent stake in Techcombank.

Many others have found it difficult to find buyers.

The Electricity of Viet Nam (EVN), for instance, hatched a plan to divest its stakes in ABBank as far back as 2011. It was to pare its ownership of the bank from 25 per cent to 20 per cent by selling stakes to HDBank. But at the last minute the latter pulled out of the deal.

In 2013 EVN tried to auction 21.3 per cent in ABBank but found no takers. Last September it decided to sell 81.6 million shares out of the 102 million it owns, but managed to sell only 40 per cent of it to six investors at face value (of VND10,000).

Brewery Sabeco announced plans to sell 500,000 shares of Saigonbank at VND75,000 in April, but only one investor has register to buy all the shares.

Some SOEs have delayed their plans to sell their stakes in banks, including telecom giant Mobifone. The company has started working on procedures to sell its 6 and 12 per cent stakes in TPBank and SeABank.

Vinatex is looking for buyers to sell its stakes in AVC, Techcombank, Eximbank, Maritime Bank, and Navibank.

Analysts blamed the SOEs' slow pace on several reasons, including the fact that bank shares, which used to be in much demand, are no longer attractive to investors. But SOEs have been instructed they cannot make a loss when selling their stakes in Decree No 71/2013/ND-CP.

This month the Viet Nam Debt and Asset Trading Corporation (DATC) announced that the shares of OCB and SCB would be offered at a public auction at starting prices of VND4,900 and VND4,100 compared to their par value of VND10,000.

The shares of other lenders BVBank, VABank, and LVBank were priced at VND5,000, VND4,000, VND5,700.

Many banks have not paid dividends in recent years.

Another reason for the devaluation of bank shares is that the weaknesses of many of them were exposed during the sector's restructuring process, including their bad debts.

Many banks have such high bad debt ratios that they have to make large risk provisioning, which affected their profits and makes them less attractive to investors.

Port competition

The Viet Nam Maritime Administration has announced plans to downsize HCM City-based ports to divert vessels to the underperforming Cai Mep-Thi Vai Port Complex in Ba Ria-Vung Tau Province.

It will call on the Ministry of Transport to limit cargo loaded and unloaded at the city's ports to help the port complex, which is operating at a mere 15 per cent of capacity.

It was designed as an international trans-shipment port to facilitate cargo transport from Viet Nam to North America and Europe.

The ministry took a number of measures to attract cargo ships to the complex, but the number using the port remains woefully low.

The poor performance is attributed to a lack of the co-operation between HCM City and Ba Ria-Vung Tau Province, which has created unnecessary competition between their ports.

The VMA hopes limiting the use of the city's ports would help the Cai Mep-Thi Vai Port Complex receive more ships and cargo.

But the question is if this is a feasible solution. After all, most Vietnamese exporters and importers rely on foreign shipping firms, who decide which ports their vessels would berth at.

Executives from some companies said an administrative fiat cannot force shipping firms to move their vessels to Cai Mep-Thi Vai Port instead of HCM City ports when conditions there do not meet their needs.

Besides, the costs that companies based in industrial hubs like HCM City and Binh Duong and Long An provinces would then have to pay for logistics services would at least double or triple because of the much longer distance and higher road user charges.

Analysts blamed the poor performance of Cai Mep-Thi Vai on irrational planning.

They said when the ministry decided to build the port complex it should not have granted licences for expanding existing ports and building new ones in HCM City.

Most the city's ports have been expanded while some new ones like Tan Cang-Hiep Phuoc and Sai Gon- Hiep Phuoc are set to open soon.

They are now capable of handling all the cargo for companies in the city and Binh Duong and Long An, they said. — VNS

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