Vietnam Airlines’ IPO criticised

HANOI After decades of speculation and multiple failed attempts, Vietnam Airlines’ long-awaited IPO is set for take-off Friday, but experts say it is unlikely to boost the communist country’s lacklustre privatisation drive.
The offer of shares in the “crown jewel” of the country’s many state-owned enterprises (SOEs) is a symbolic milestone in a broader government plan to offload stakes in hundreds of companies.
But the state will still retain a controlling 75% stake in the flag carrier, suggesting there is little appetite for real change.
inside no 8.1“Officials want to avoid real privatisation,” economist Bui Kien Thanh told AFP. “With the economic system run by state officials, the economy can’t grow effectively.”
Just 3.5% of shares will be offered publicly Friday, a move Vietnam Airlines hopes will raise USD51 million in a deal that values the company at USD1.5 billion.
A further 20% stake will go to a strategic partner, while the rest is set aside for airline employees and the trade union.
“It’s disappointing from a pricing perspective,” said Kevin Snowball, CEO of PXP Vietnam Asset Management, who said the shares looked expensive relative to current and prospective earnings.
“It’s symptomatic of the state of the whole equitisation process,” he said, using the Vietnamese term for privatisation. “There is a fundamental misunderstanding across the board of what stock markets are for and how they work.”
In Vietnam, an IPO is separate from an actual stock market listing — sometimes by several years — which Snowball said was another major deterrent for investors.
Yet despite the challenges there remains huge investor interest in the country — a recent USD1 billion government bond issue was heavily oversubscribed.
Vietnam Airlines is in a relatively strong position domestically, despite new competition from low-cost VietJet Air, with the country of some 90 million a fast-growing aviation market.
But it is expected to face stiff regional competition as it looks to expand long haul routes, and many experts question whether the carrier will be able to find an airline as a strategic partner.
inside no 8“You see the same names in Asia emerge when an airline is looking to sell a stake to another airline, and very few deals have materialised,” said Brendan Sobie, an analyst at the CAPA Centre for Aviation.
“Most airlines in this region have been losing money and most of the recent IPOs (such as Indonesia’s Garuda) are trading below their initial price,” he added.
Vietnam’s privatisation project is part of a broader drive to attract foreign investment.
Analysts think the IPO will bring Vietnam Airlines a little extra cash and potentially some foreign expertise, which could help improve efficiency, but is unlikely to bring a radical transformation in either the company or the state sector more broadly.
“They’re trying to have their cake and eat it,” Foster said, adding the IPO was not going to change the fact that overall “the state sector in Vietnam is a disaster”.

sourced:ttrweekly.com