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Cablegate: High Priced Ipos Hurting Vietnam's Equitisation Process

VZCZCXRO6969
PP RUEHHM
DE RUEHHI #0123/01 0320905
ZNR UUUUU ZZH
P 010905Z FEB 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7105
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 2506
INFO RUEHHM/AMCONSUL HO CHI MINH 4235
RUEHBK/AMEMBASSY BANGKOK 6175
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000123

SIPDIS

DEPT FOR EAP/MLS, EB/IFD, USAID/ANE, USAID EGAT/EG
BANGKOK PASS TO RDM/A
DEPT PASS USTR FOR D BISBEE
SINGAPORE FOR TREASURY S BAKER
TREASURY FOR SCHUN
DEPT PLEASE PASS FED RESERVE SAN FRANCISCO FOR A MAYEDA

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN EAID ECON PREL VM
SUBJECT: HIGH PRICED IPOS HURTING VIETNAM'S EQUITISATION PROCESS

Ref: 2007 Hanoi 1561

1. (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR
INTERNET.

2. (SBU) Summary: Vietnam's process of "equitisation," or partial
privatization, of large state-owned enterprises began in July, 2007.
High initial auction prices have discouraged strategic investors
from buying in to Vietnam's "blue chip" companies. With global
equity markets sagging, private investors also appear to be taking a
second look at the high share prices being set by the GVN. End
summary.

3. (U) To date, the GVN has "equitised," or partially privatized,
over 3,700 state-owned companies with total chartered capital of 94
trillion dong (approx. 5.857 billion USD). Up until the summer of
2007, these equitisations had primarily been of small and medium
sized companies that were not considered to be amongst the "blue
chips" of Vietnam's state-owned enterprises (SOEs). The process for
equitisation is set out in Decree 109, revised shortly before the
equitisation of larger companies began last summer. Partial
privatization begins with an initial public offer (IPO) in which the
initial public share auction based on a floor price set by the GVN,
closely followed or preceded by the sale of a set amount of shares
to a strategic investor (with management and technological
expertise) based on the initial auction price. Winning bidders at
the initial public auction actually pay for their shares several
weeks later. Equitised companies are not required to list on the
stock exchange.

4. (SBU) The GVN began equitising large SOEs starting in July, 2007,
with the IPO of Bao Viet, Vietnam's largest insurance company
(reftel). The GVN was not able to bring in a strategic investor at
its desired price prior to or shortly after the auction, and many
bidders lost confidence and refused to pay for their shares when the
gray market price dropped following the IPO. The failure of the Bao
Viet equitisation caused much consternation and reflection within
the GVN, and led many inside and outside the government to believe
the government would try to remedy the process by restructuring it
in subsequent equitisations by bringing in the strategic investor at
an earlier stage and at a more discounted share price.

5. (SBU) The way the government carried out the recent equitisations
of Vietcombank and Sabeco, however, suggests the government has not
restructured the process. In the run-up to the equitisation of
Vietcombank, one of Vietnam's four large state owned commercial
banks (SOCBs), the government negotiated with Goldman Sachs, GE
Money, and Nomura with the aim of selecting one to be the strategic
investor. These negotiations failed because the GVN demanded a
share price that was too high. Thus, Vietcombank launched its IPO
on December 26, 2007 without a strategic investor in place. Even
though Vietcombank sold all available shares at the auction (worth
6.5% of the total value of the bank), some local fund managers
believe other SOEs did most of the buying under pressure from the
GVN (in the local parlance, the GVN "stuffed" the shares into the
other SOEs). Various local funds, such as Vinacapital, deliberately
sat on the sidelines and chose not to buy any of the shares of the
IPO because the "auction" set price was so high (100,000 dong per
share, around 6 USD, or about 6-7 times book value.) Vietcombank
officials, in a recent meeting with the visiting Treasury Attach
from Singapore and Econoffs, claimed that the buyers (those who paid
a 10% deposit of the auction price on December 26) completed their
purchase and paid over 90% of the auctioned shares on January 20th,
a large improvement over the Bao Viet auction. Private equity
investors in HCMC, however, told us the figure was actually much
lower, only around 40-60%. In other words, anywhere from 10%
(conservative estimate based on Vietcombank official) to 60%
(liberal estimate) of the people who won at the auction in December
chose to walk away three weeks later, preferring to lose their
deposits than pay too much for the shares. We cannot confirm which
figure is accurate. In the meantime, Vietcombank states that it
will list on the stock market in the spring of 2008, with or without
a strategic investor.

6. (SBU) The equitisation of Sabeco, a state-owned beverage
producer that accounts for about 50% of local beverage sales,
appears to be following a similar path. Its IPO auction on January
29 resulted in only 61% of the available shares being sold. Shares
were priced at a floor of 72,000 dong (about 4.50 USD), or 72 times
2007 earnings. Once again, no strategic investor would bite at
those prices. Although some press reports claim that lack of
investor interest stems from the general slowdown in the markets,

HANOI 00000123 002 OF 002


local analysts point to the over-valued auction price as being the
deterrent for most. The GVN just announced that the equitisation of
SOCB Agribank has now been pushed back from 2008 to 2009.


7. (SBU) Comment: The rationale used by the GVN to justify high
prices for strategic investors has been that Vietnam does not want
to sell off its assets too cheaply to foreign investors, like China
or Russia have been accused of doing in the past. The strategic
investors have pushed back, noting that they carry greater risk than
the average investor and therefore should be given a discount off
the public auction price. Now that the initial frenzy surrounding
the Vietnamese stock market has cooled, it seems that even the local
traders are not biting at such optimistic share prices. The local
media is beginning subtly to question the wisdom of the IPO process
and the valuations used by the GVN to set auction prices, indicating
that perhaps the public is being prepared for a softening of the
GVN's stance on strategic investors. With the equitisation of over
2,000 SOEs remaining, the GVN still has time to get it right. End
comment.

MICHALAK

© Scoop Media

 
 
 
 
 
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