Economic Sector

Last updated: Wednesday, May 15, 2019


Cautious about Equity Sales at SOEs

Posted: Tuesday, July 31, 2018

At the M&A Forum 2018, economic experts noted that share sales at State-owned enterprises (SOEs) need to be carried out with caution and aim for high value rather than the count of SOEs equitised.

4,000 deals in 10 years
At the M&A Press Conference on July 24, Deputy Minister Nguyen The Phuong of Planning and Investment said that nearly M&A deals worth US$48.8 billion were concluded in Vietnam in the past 10 years. In 2017, the total M&A value made an all-time high record of US$10.2 billion. In particular, the record deal of the decade belonged to ThaiBev of Thailand, which purchased 51 per cent of Sabeco's stake for US$5 billion through its subsidiary Vietnam Beverage. In the first six months of 2018, the total value of M&A deals in Vietnam was estimated at US$3.35 billion and forecast to top US$6.5 billion in the whole year.

"It can be said that the Vietnamese M&A market is facing new opportunities to make a new turning point, a new era. Besides, it also exposes potential risks that need to be anticipated and to have solutions for M&A development," he said.

He also pointed out challenges faced by Vietnam, including economic weakness, external risks from the world, trade protectionism and trade wars among major economies.

According to a report released by the Organising Board of the M&A Forum, in 2017, SOE equitisation and divestment changed substantially. For the first time, the Government publicised the list of SOEs to be equitised and divested, and privatisation rates of each enterprise for investors and the market to consider and select. Among 40 SOEs equitised in 2017, many large-scale enterprises sold their shares to the public and floated their shares on the stock exchange soon after their equitisation dates, such as Binh Son Refining and Petrochemical Co., Ltd (BSR) and PetroVietnam Power Corporation (PV Power). These initial public offerings (IPOs) also brought VND140 trillion (US$6 billion) to the State coffers.

According to the M&A Forum Organising Board, while some groups are very successful with their M&A deals and generated synergised value from those deals, some fail to anticipate the upshot of their deals and cannot manage their target businesses. In the end, they had to sell their assets in their acquired entities to return to their core businesses or repay banks.

"Many equitisation and divestment deals fell short of expectations. Typically, the IPO of Becamex IDC brought in just VND588 billion (US$25.5 million), much lower than the estimated target value of VND9,650 billion (US$420 million). The main reasons why investors did not buy Becamex IDC shares are the State holds high stakes for too long, debts are high and its project progress is slow," a representative of the M&A Forum Organising Board said.

Song Da Corporation was also unsuccessful with its equitisation plan. The corporation planned to sell 219.7 million shares via a public auction at a starting price of VND11,000 per share, reducing the State stake to 51 per cent in 2019. But, it could sell just 790,000 shares through the IPO or just 0.35 per cent of the offer. Proceeds were just nearly VND9 billion.

Not selling in bulk
According to experts, Mobifone - AVG deal presented risks involved in M&A strategy execution, valuation, legal compliance and personnel. This deal has been deeply analysed by professionals, investors and authorities in many angles.

Ms Le Hai Yen from Bao Viet Securities Company (BVSC) said that measuring the success or failure of a State divestment depends on various factors. After the divestment, will foreign investors speed up business development and improve business development? For example, Thaibew's takeover of Sabeco will help this brewer strongly change corporate governance. To date, all shareholders win.

Remarking on State shareholding ratios at equitised SOEs, Mr Phan Duc Hieu, Deputy President of the Central Institute for Economic Management (CIEM), said that the number of SOEs equitised is big, but the value of proceeds is small. The success of an M&A deal is determined by investors. Policy-making bodies can only anticipate future developments. SOEs cannot sell their shares when investors are not interested.
"Selling State capital must be wise enough and more strategic. It is important how to sell at the highest value," he said.

He also expressed his hope that the M&A market in 2018 will have more successful deals in which the State will sell at the highest price of SOEs. "I believe that the decision of the Government to establish a State Capital Management Committee at enterprises will be instrumental to promote equitisation and divestment in the coming period and put an end to segmented State-ownership function," Mr Hieu noted.


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