IPO timing should be re-arranged?

13:20' 10/07/2007 (GMT+7)

VietNamNet Bridge – If a lot of IPOs are made at the same time, it would cause losses to the State, as the seller. However, the re-arrangement of the IPOs is thought to spoil the process of state owned enterprise (SOE) equitisation. Warning: massive IPOs will cause losses Under the Government’s Decision No 1729, in 2007-2010, Vietnam will have 71 economic groups and general corporations equitised. In 2007, some 20 corporations will be brought into equitisation, including Vietcombank and the Mekong Housing Development Bank (MHB). However, according to Nguyen Trong Dung, Deputy Head of the Enterprises Renovation Department under the Government Office, the Government is reconsidering the timing for IPOs of these enterprises, since the supply is now exceeding the demand, which may cause losses to the State. Mr Dung said that the SOEs now subject to the equitisation are all 100 times bigger than the SOEs equitised in the last time. While the supply-and-demand imbalance exists on the market, the additional supply of commodities will make the state lose a big sum of surplus capital during the share auctioning process. Sharing the same view, Ngo Tri Long, Deputy Head of the Market and Price Research Institute under the Ministry of Finance, stressed that the rethink of IPO timing proves to be very necessary, which can help prevent the ‘Russia’s lesson’ from repeating. According to Mr Long, when equitising SOEs, Russia tried to sell out the shares of big enterprises. As a result, many opportunists could buy many shares of the enterprises at very low prices, then grasped power in these enterprises. Foreign media once called the equitisation process in Russia a ‘tragedy’. Nguyen Dinh Cung, an economist, said that the Government has made the right decision to ask for reconsidering the IPO timing. IPOs should not be conducted at an unsuitable time. The decision by the Government and viewpoint by economists has been applauded by many individual investors. Nguyen Thanh Duong, an investor on SeABS trading floor said: “The State would suffer a loss if its sells commodities now”. Mr Duong now holds nearly VND3bil worth of Phu My Fertiliser’s, Bao Viet’s, Mediplantex’s and Hoa Phat’s securities. These are all OTC commodities which cannot be sold at this moment, when the market is quiet. Mr Long surely does not want the State to pump more commodities to the market when he still cannot ‘drive out’ the commodities he has taken on at high prices. However, the decision by the Government has not been applauded by Viet Kieu (overseas Vietnamese) investors who have returned from Russia. From the beginning of 2007, when the Government of Russia decided to tighten the business of foreigners in the country, many Vietnamese people have returned to Vietnam, bringing a big sum of capital. The capital, according to experts, will be injected in the real estate market and securities. In one word, these investors need somewhere to invest in, and they are awaiting the IPOs of big groups and corporations. Nguyen Minh Long, head of a group of Viet Kieu investors, said that his group’s VND20bil are awaiting to be injected in shares of Vietcombank and MHB when the two big banks make IPO as planned. IPO rethink will delay equitisation process The statistics showed that by the end of 2006, Vietnam had equitised 2,935 SOEs, 80% of which have been equitised since 2001. In fact, the State only equitised 77% of SOEs with the capital of less than VND10bil and 30% of SOEs with the capital of less than VND1bil. After equitising, the state still holds the controlling stakes (more than 50%) in 33% of equitised companies, and less than 50% in the other 37%. The State does not hold stakes in the unprofitable enterprises of less than VND1bil. Economists have estimated that only 12% of total state owned capital has been equitised, and only 3.6% of the equitised state owned capital have been sold to the public. In fact, the majority of shareholders in equitised companies are still the state, as most of the strategic shareholders and capital contributors in equitised companies are other state entities. Experts have warned that if the state reconsiders the IPO timing of a lot of SOEs in 2007, it would affect the quality of the equitisation, which has been considered as of ‘low quality’ due to the low proportion of shares sold to the public. Besides, the equitisation process, which has been slow, will be further slowed down. (Source: Viet Nam Net)