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Vietnam’s SOE divestment, IPO proceeds to triple in 2018-2020

As a new wave of public sector reform gets underway, large-caps are seen as attractive ‘buys,’ in the current market correction, says SSI.

As the Vietnamese government continues its aggressive public-sector reforms, the total funds raised from IPOs and the divestment of state-owned enterprises (SOEs) may triple in 2018-2020 compared to levels seen in the 2011-2017 period, according to Saigon Securities Inc (SSI).

The total proceeds from IPOs and the share sale of SOEs in the next two years are expected to reach $26.3 billion, 2.75 times higher than the funds raised for the whole period between 2011 and 2017. Specifically, the value of IPOs will reach $9.7 billion, while the total amount of divestment could hit $16.6 billion. “Vietnam could end up being the only country in the world that embarks on a new wave of SOE reform in 2018-2020, placing large and profitable SOEs on public offer,” says SSI.

Vietnam plans to make the country’s state-run enterprises more compliant with market principles and practices after following the establishment of the State Capital Management Committee in February this year, says SSI. As many as 30 enterprises and economic groups will be transferred to the committee, which will manage the restructuring and sale of any public companies.

Infrastructure Strategy

Proceeds from the divestment of SOE stakes, as well as corporate dividends, are vital funding sources for the government’s infrastructure spending. Vietnam is boosting spending on transport and logistics facilities amid rapid urban growth and domestic consumption. With a projected 2018 GDP growth of 6.7%, it boasts one of the world’s fastest-growing economies. The country’s two stock exchanges -- the Hanoi Stock Exchange and the Ho Chi Minh Stock Exchange – have climbed approximately 31% and 48% respectively in the last year.

“We don’t see the stock market valuation to be particularly demanding (2018 PE at 15x), given current high growth prospects,” says SSI. The company says it is generally positive about large-cap stocks across the financial, construction, tourism and retail sectors, adding the manufacturing industry is growing at “torrential” pace. It expects up to 10 banks to comply with the Basel II requirements in 2020, a deadline set by the government’s banking reform 2016-2020 roadmap.

“We expect these banks to start preparing for capital raising,” says SSI.  These include Joint Stock Commercial Bank for Foreign Trade of Vietnam, Bank for Investment and Development of Vietnam HD Bank, VP Bank and many more. SSI is keeping watch on the IPOs of Mobifone, retailer SATRA and Saigon Tourist among others.

Foreign investors needed

Foreign participation in public equities is rising steadily in both relative and absolute terms, and currently accounts for about 21% of market capitalisation. In fixed income, foreign investors hold just about 5% of the total outstanding volume of government bonds, says SSI.

The company estimates net earnings growth of 68 companies under its coverage to average 28.7% in 2018, driven by the consumer discretionary and financial sectors. 

Supported by Vietnam’s robust economic growth and equity market performance, SSI, which is the country’s biggest securities firm by market value, is targeting VND3,410 billion ($149 million) in revenues and VND1,615 billion in profit for 2018. The company recently won Vietnam’s ‘Best Investment Bank in Vietnam’ and ‘Best Equity Capital Markets House’ in FinanceAsia’s 2018 Country Awards. Going forward, SSI plans to focus on capital growth and diversification.

Expanded Product Base

Notably, the company aims to develop products that suit different risk and reward profiles and expand its activities in corporate bonds, derivatives and structured products. With numerous SOEs expected to sell shares as well as an attractive pipeline of IPO activities this year, SSI has been focusing on “expanding its customer base to include large-scale private enterprises with potential growth prospects in key sectors,” says SSI.

Looking beyond 2020, SSI expects the country’s sovereign rating to be upgraded to Investment grade. “We are positive that the reforms will show good results.”

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