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Economic Sector

Last updated: Monday, May 21, 2018

 

Windfall Capital from SOE Divestment

Posted: Tuesday, January 16, 2018


Looking back on large-scale state-owned capital sales last year, it is undeniable that the success of privatisation quality is higher, reflected by business valuation, enormous proceeds earned from divestments in top-class State-owned enterprises (SOEs).

Impressive deals
The State divestment of 53.59 per cent of stake at Sabeco impressed the market as the deal brought in US$4.8 billion to the State. This is the largest-ever divestment in the Vietnamese market to date and one of the largest divestments in the region in 10 years.

Previously, State Capital Investment Corporation (SCIC) also sold 3.33 per cent of stake at Vinamilk for VND9,990 billion from an original value of VND247 billion.

However, according to plan, the outcome in 2017 was far behind the target. According to Decision 1232/QD-TTg, State divestments must be performed in 181 SOEs. In fact, only 10 companies were divested in accordance with the Decision 1232/QD-TTg, including eight in 2017 and two in 2018. SOEs divested VND1,083 billion of State capital and brought VND2,953 billion to the State. SCIC sold state-owned shares worth VND1,903 billion in 40 companies for VND21,639 billion.

According to the equitisation plan in 2017, 44 SOEs would go public. But, 45 SOEs were approved for privatisation with a total value of VND213,747 billion, six times higher than in 2016. These companies must launch initial public offering (IPO) within 90 days. If they could not start in 2017, their IPOs must be done in the first quarter of 2018.

Thus, SOEs subject to equitisation or divestment in 2018 are in a great number. This is why 2018 is considered an important year of SOE restructuring. Inspired by successful deals in 2017, proceeds taken from State stake sales sent to the Ministry of Finance will be huge this year. “With changes in 2017, the equitisation plan is hoped to be completed in 2018,” said Mr Dang Quyen Tien, Director of the Department of Corporate Finance under the Ministry of Finance.

Vietnamese M&A market attracts foreign investors
In 2018, the number of equitised and divested SOEs will account for more than 50 per cent and 44.6 per cent of the 2017 - 2020 period. Companies named in the list of equitisation and divestment approved by the Prime Minister in 2017 must go public in 2018. Thus, pressures to this effect in 2018 will be very huge.

The key, or even decisive, factor to the equitisation process is the outperforming stock market. Specifically, in 2017, VN-Index exceeded 970 points for the first time in 10 years.

VN-Index was one of three best performers in the world. The market capitalisation rose to VND3,360 trillion, up 73 per cent from the end of 2016. This is an important support for SOE divestment acceleration.

At the Seminar on Industrial Investment Promotion via M&A in mid-December, Mr Seek Yee Chung from Baker & McKenzie Company said that Sabeco is a good example of the government's commitment to SOE divestment. “Vietnam is very attractive to foreign businesses,” he said.

Five leading sectors in the M&A market in 2016 were consumer goods and retail (US$2.5 billion), industry (US$1.1 billion), real estate (US$600 million), telecommunications (US$500 million), and finance (US$400 million).

The Vietnamese M&A market exerts a strong pull on investors in Singapore, Japan and South Korea, which are also top foreign investors in Vietnam. According to statistics, foreign investors now carry out 77 per cent of big M&A deals.

In 2018, consumer goods and retail, real estate, and industry will continue to attract investors. The private sector is also expected to grow quickly with strong population and better quality.

The financial sector has not seen big deals in the past years yet, but investors are pinning hopes on this field 2018 and subsequent years thanks to reduced bad debts.

Le Minh








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