Corporate Financing Analysis - The Incoming Vietnamese IPO Wave - 06 NOV 2017
Vietnam's IPO market has recorded its largest ever domestic float, a USD708mn offering from the country's largest mall operator, Vincom, which is more than twice the size of the previous record listing on the local Ho Chi Minh City Stock Exchange (HOSE). In BMI's view, the significance of the float is more than just a quantitative domestic record; rather, it looks set to mark the start of a deluge of deals which are expected to come to market in Vietnam over the coming months as the national government embarks upon the next stage of a deep-reaching privatisation drive.
With the government facing a fiscal dilemma between having to rein in public debt, which is hovering near the National Assembly's mandated ceiling of 65% of GDP (public debt as a share of the economy also shot up to 64.7% as of end-2016, from around 55% in 2013), and financing badly needed infrastructure development in the country, the country's privatisation drive has been stop-start for some time ( see ' Vietnam Opening Up To Foreign Investors With Privatisation Renaissance ' , October 26 2016). With the pressing need for Hanoi to balance the books by opening up the Vietnamese economy, however, the government has put renewed emphasis on its privatisation agenda ( see ' Vietnam ECM Ready For Take-Off ' , December 7 2016), with the equity capital markets (ecm) arena set to provide the avenue for a high volume of stake sell-downs to be made. In this vein, BMI's Vietnam analyst is of the view that the government's move to increase the stake percentage of Vietnamese firms permitted to be sold off to foreign ownership is key to helping the country reduce its debt load - a figure that the Vietnamese government has been struggling to reduce over recent years. Indeed, Vietnam has run a persistently wide fiscal deficit for some time now, with official figures from the Ministry of Finance showing that the budget shortfall averaged 6.4% between 2013 and 2015, before coming in at an estimated 5.6% of GDP in 2016. Furthermore, we point to the fact that the state appears happier to sell off larger minority holdings in companies (than it has done with privatisations previously) as key to the potential success of the latest wave of deals. Indeed, BMI believes that this move will likely serve the purpose of attracting more institutional and individual investors to a deal. Indeed, we see such a development as a win-win scenario for the process of state sell-offs: on the one hand, it will appeal to investors who will see the reduction of state control in a companies as being a likely indicator that the business will be more active in the private sector going forward, while on the other hand the continued focus on maintaining majority holdings in most instances - albeit with larger minority stakes being floated - will maintain government input over key strategic companies and industry sectors without stifling ecm investor interest.
The Record Deal
|On The Rise|
|Vietnam IPO Activity By Deal Value, USDmn|
|Source: Zephyr ( a Bureau van Dijk product ), BMI|