SOEs struggle to find strategic partners

Monday, Sep 22, 2014 08:08

The country's apparel exports topped $20 billion last year, of which Vinatex contributed nearly $3 billion.— VNA/VNS Photo Thanh Vu


After a search for suitors that lasted several months the Viet Nam National Textile and Garment Group (Vinatex) finally identified two of them — Vingroup and Vietnam Investment Development Group. But Vinatex's quest for strategic shareholders has not come to a happy conclusion since they are said to be not what the company had expected: both are property companies.

This has sparked off a debate about State-owned enterprises (SOEs)'s strategic shareholders in recent times.

Vinatex, to equitise, has to offer 120 million shares or 24 per cent of its stake to strategic investors, and nearly 122 million shares in its initial public offering (IPO).

In its search for strategic shareholders, Vinatex's criteria were that the parties should be in the same line of business, possess solid management capabilities and knowledge about the apparel market, and be able to provide financial and technical support.

A particular focus was on financial resources, a strong name in the industry, and willingness to help develop business strategies in the short term and respect and promote Vinatex's traditional values.

Starting in late 2012, and especially last year, Vinatex held talks with many large companies, mainly in the apparel sector.

But for many months it was unable to find partners that fulfilled its criteria.

Finally this month the group decided to sell 14 per cent to VID Group and 10 per cent to Vingroup.

Many other major SOEs are faced with a similar situation in their search for strategic partners.

At its annual shareholders meeting, the bosses of Petro Viet Nam Gas Corporation (PVGAS) revealed that the company was looking for strategic shareholders to carry out its equisation plan, under which the Government's 97 per cent stake would be pared to 75 per cent.

PVGAS is keen on foreign investors with plenty of expertise and experience in the gas industry, who could help grow the company.

It has to yet to identify suitable partners.

Out of the six major airlines in Southeast Asia, only Vietnam Airlines is unlisted. The company is in the process of equitising, and plans to make an IPO in November.

But airlines are not very attractive since aviation is a capital-intensive, low-profit industry. So Vietnam Airlines is unlikely to find it easy to attract strategic shareholders.

Where does the problem lie for SOEs?

The country's apparel exports topped $20 billion last year, of which Vinatex contributed nearly $3 billion. But the industry is plagued by its dependence on feedstock imports, with cost as much as $13 billion last year. Vinatex's imports cost $1.5 billion.

To address the problem, the group plans to invest upstream in cotton growing, spinning, and dyeing.

But it is not a straightforward proposition since this requires large investments and the payback takes long.

Meanwhile, Vinatex is unable to sell itself to potential investors as a value proposition.

As for Vietnam Airlines, analysts warn that it will have difficulty in finding strategic partners for a different reason — the Government's diktat that it can sell only 25 per cent of its shares, a figure that will not be attractive to investors.

Besides, in its case the old chestnut about airlines is true – while the company was valued at $2.74 billion, its net profit in the first quarter was only around $20 million.

There are other procedural difficulties too.

SOEs have just a few months to complete the task of equitisation while strategic investors often take a year or more to do due diligence and thoroughly study a target company. And then they need to touch base with executives at the company to ensure things will work smoothly after the deal is done.

Yet another problem is that the valuation of SOEs for equitisation is neither transparent nor professional.

Many SOE bosses are apprehensive that they would end up losing some of their vast powers and so are not keen on selling a large enough percentage of shares that strategic investors will find attractive.

The enterprises are usually inexperienced in the task of identifying strategic shareholders, which causes further delays.

Those SOEs that manage to overcome all these problems only end up discovering that the capital markets have not yet recovered and investors are not exactly falling over themselves to buy their shares.

Domain name trading legalised

Starting this month trading internet domain names has become legal in Viet Nam.

The Prime Minister's Decision No 38 vests in the Ministry of Information and Communications the authority to trade and auction unregistered and expired domain names.

The decision dated July 1 reportedly has clear regulations to create a legal market for domain name trading.

Analysts said it meets the market demand for trading domain manes and also complies with international norms.

It is expected to energise domain name trading and cause a series of trading floors to be set up soon. Commercial domain names of value can be traded easily hereafter, benefiting both investors and buyers.

Even before the issue of the decision and despite the lack of a legal framework, the domain name businesses was booming in the country due to high demand and profitability.

According to Viet Nam Internet Network Information Center (VNNIC), registration of ".vn" domain names is growing at an average annual rate of 172 per cent.

As of December last year the number of ".vn" domain names had risen to 90,865, up 14.3 per cent from a year earlier, making Viet Nam the largest country-code top level domain among ASEAN members.

As many as 75,000 Vietnamese businesses have registered 200,000 domain names as of early 2014, including both Vietnamese and international domain names.

The trade in domain names is a lucrative business. Analysts say the opportunity to make profits from Vietnamese domain names (.vn and is huge because registration fees are low at up to a few hundred thousand dong while selling prices could be hundreds of times higher.

Not surprisingly, hundreds of people are involved in trading domain names, both individuals and companies and mostly in Ha Noi and HCM City. — VNS

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