Companies embrace IPOs for new investment opportunities amid potential risks
Numerous businesses are revisiting the idea of issuing shares to the public for their initial public offering (IPO), which presents fresh investment prospects but also carries considerable risks.
Numerous businesses are revisiting the idea of issuing shares to the public for their initial public offering (IPO), which presents fresh investment prospects but also carries considerable risks.
As the 2024 shareholders' meeting season unfolds, the topic of IPOs and listings is once again in the spotlight, with many companies revealing their plans.
Đoàn Nguyên Đức, the Chairman of the Board of Directors of Hoàng Anh Gia Lai Joint Stock Company (HAG), shared that the company intended to IPO its subsidiary, Gia Lai Livestock Joint Stock Company, by the end of 2024.
"Gia Lai Livestock used to face significant financial difficulties due to its bad debt with Eximbank. However, it successfully resolved the debt issue last year," Đức said.
Hoàng Anh Gia Lai currently holds an 88.03 per cent stake in Gia Lai Livestock, a subsidiary with a charter capital of VNĐ1 trillion and total assets of VNĐ3.4 trillion as of the end of 2023.
In the past year, the company experienced a 9 per cent decline in revenue, amounting to VNĐ1.7 trillion, but its after-tax profit surged by 174 per cent to VNĐ1 trillion. Gia Lai Livestock's asset utilisation efficiency (ROA) reached an impressive 29.1 per cent, surpassing that of listed livestock enterprises.
At FPT Digital Retail Joint Stock Company (FPT Retail or FRT), Chairman of the Board of Directors, Nguyễn Bạch Điệp revealed the company's plan to privately offer 10 per cent of shares from the Long pharmacy chain.
The move aims to expand their health ecosystem, allowing Long Châu to penetrate various healthcare sectors such as preventive medicine, diagnosis, treatment, pharmacy services, home monitoring and insurance.
Since its establishment in the third quarter of 2018, Long Châu has been consistently expanding its nationwide network of stores. In 2023 alone, the pharmacy chain plans to open an additional 560 stores, bringing the total to 1,497.
Regarding financial performance, Long Châu achieved a slight profit in 2021 and then witnessed strong growth in both revenue and profit.
In 2022, the company's revenue reached VNĐ9.6 trillion, and its EBITDA (earnings before interest, taxes, depreciation and amortisation) amounted to VNĐ200.4 billion.
In 2023, revenue increased by 65.5 per cent to VNĐ15.9 trillion, while EBITDA rose by 154.7 per cent to VNĐ510.5 billion.
Hoa Sen Group Joint Stock Company (HSG) plans to IPO the plastic and steel pipe segment, while Masan Group Joint Stock Company (MSN) aims to IPO and list Masan Consumer Joint Stock Company (Masan Consumer, trading on the UPCoM market with the stock code MCH).
When it comes to the benefits for the parent company in listing its subsidiary, Danny Lê, General Director of Masan Group, said based on our estimates, the IPO of Masan Consumer is expected to enhance the valuation of Masan shares, as Masan Consumer's stock on UPCoM is currently trading below its intrinsic value.
Lâm Văn Vân, representative of ECI Capital Investment Fund, highlighted that amid a challenging economic environment, any efficiently operating business becomes a beacon in the market.
A successful IPO of a subsidiary creates appealing new investment opportunities, enabling businesses to mobilise capital without increasing interest burdens and resolving capital issues for both the subsidiary and parent company.
Furthermore, a well-established subsidiary can serve as a lifeline for the parent company's gradual recovery by leveraging its advantages after listing.
In practice, IPOs of subsidiaries also serve as a means to secure long-term capital for subsidiary development when the parent company lacks the necessary resources for investment.
This approach helps minimise risks for the parent company, prevents interference with other activities and leverages the parent company's reputation and brand position to attract investments and capital through the stock market.
"In many instances, subsidiaries opt for an IPO to seek strategic partners for new projects. They separate from the parent company and develop an IPO roadmap to attract strategic partners and foreign investment funds for their new ventures.
"Sometimes, subsidiaries go public to enhance the parent company's valuation or create market expectations to increase the parent company's stock value. Listing a subsidiary's shares can also facilitate the parent company's ability to pledge the subsidiary's shares and mobilise capital from financial institutions," Lâm Văn Vân said. — VNS
