It’s time to allow foreign firms to list in Việt Nam: experts

Monday, Sep 16, 2019 09:00

Many experts call for a clear legal mechanism to convert foreign-owned firms into public companies, enabling them to list on the Vietnamese stock exchange. — Photo

The economy grew at 6.7 per cent in the second quarter. The foreign-invested sector is considered a key player in helping Viet Nam achieve such growth rates through its exports.

In the first eight months of this year, foreign-owned firms’ exports including crude oil were worth US$118 billion, up 5 per cent from the same period last year and accounting for 69 per cent of the country’s total exports.

Foreign firms’ imports during the period were worth $96.15 billion, up 4.8 per cent and accounting for 57.7 per cent of all imports.

In light of their huge contribution to the country’s economy, many experts call for a clear legal mechanism to convert foreign-owned firms into public companies, enabling them to list on the Vietnamese stock exchange.

They said the time is ripe for creating conditions for them to list their shares in Viet Nam.

Viet Nam is striving to improve its stock market’s status and implementing measures to attract portfolio investment, and allowing FDI firms to list would help the country achieve this goal, they said.

They called for amending the Law on Investment and Law on Securities to create conditions for foreign investors to enter various economic sectors.

The country’s stock exchange too will become more attractive to investors if foreign companies can list on them, growing in size and offering more products.

It would create a virtuous cycle by attracting more direct and portfolio investment flows from abroad, experts said.

State management agencies will then find it easier to monitor activities related to acquisitions by foreign companies, generally improving transparency overall.

Listed foreign firms will be overseen more closely since now, in addition to authorities, investors and shareholders will also keep a close watch on them.

However, it is necessary to have clear legal regulations and ensure foreign firms are properly audited before they are allowed to list to reduce the risk for both the investing public and the market.

Cross-ownership still plagues banking system: experts

The successful issuance rate for corporate bonds in the first eight months was 90.8 per cent and the value of the market was equal to 10.2 per cent of Viet Nam’s gross domestic product (GDP), SSI Retail Research estimated.

The issuances totalled VND129 trillion, SSI estimated based on information disclosed on the stock exchanges and companies’ websites.

Analysts said the market has never set such a scorching pace as in the last few months, and banks were the biggest issuers.

Lenders raised a total of VND56 trillion or almost 48 per cent of the total issuance. They were followed by property companies (nearly VND37 trillion), infrastructure developers (VND9.2 trillion), and non-banking financial firms (VND4.42 trillion).

The banking sector achieved the highest successful issuance rate of 99.9 per cent.

HDBank raised VND11.6 trillion and VPBank, VND13.86 trillion including $300 million from international bonds.

The strong growth in the bond market has been attributed mainly to the Government’s Decree 163.

Firms in all sectors are thought to take advantage of this decree, which regulates the private issuance of corporate bonds. The Government released the decree last December to bypass more stringent requirements for public issues under the Law on Securities.

While companies making public issues are subject to requirements such as being profitable in the latest financial year, having no accumulated losses and no debts overdue for more than one year, the new decree has removed or eased many of these conditions for private issues.

Buyers of privately issued bonds are only required to hold on to them for one year before being able to sell to others, which makes private issues effectively public issues after one year.

In addition, information on corporate bond issuance has become more transparent with the active participation of lead managers like banks and securities companies, making them more attractive.

But despite the logical reasons underpinning the strong growth in the corporate bond market, many analysts are sceptical and talk about the possibility of cross-ownership continuing in the banking sector.

A report recently issued by the State Bank of Viet Nam said cross-ownership has almost been resolved, but many experts have taken this with a pinch of salt.

They pointed to the fact that though the coupon rates on banks’ bonds are low compared to those on bonds issued by enterprises in almost any other sector, most are sold, with the main buyers being securities firms owned by banks.

Banks’ bonds carry an average rate of only 6.75 per cent. In comparison, property companies’ bonds pay 10 per cent and those of infrastructure and financial companies carry rates of 9.79 per cent and 8.64 per cent.

So why are they so popular?

Their main buyers are securities companies, who have bought bank bonds worth almost VND22.9 trillion, way higher than their combined capital.

In fact, some of them have themselves issued bonds to raise funds.

Some experts believed banks are selling bonds to each other to improve their liquidity since the central bank has begun to reduce the ratio of short-term deposits they can use for medium- and long-term lending.

The half-yearly reports of 18 commercial banks as of June showed that they held bonds worth VND56.4 trillion, almost exactly equal to the value of the bonds they had issued. — VNS

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