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Vietnam looking to drive SOE stake sales forward in 2018

The assets the government plans to sell will include leading companies in energy, power and petroleum.

Vietnam's push to privatize state-owned enterprises (SOEs) is expected to move up a gear this year.

The government plans to sell 6.5 times more shares than it offered last year, Deputy Prime Minister Vuong Dinh Hue said in an interview with Bloomberg Television. The state raised VND135.6 trillion ($6 billion) from stake sales in 2017.

“We need more foreign investment but also want to lure good investors who can help our companies improve corporate governance,” Hue said. The assets the government plans to sell “will include leading companies in energy, power and petroleum,” he said.

The government has slated 181 state-owned companies to divest from and 64 more for broader share sales through initial public offerings (IPOs) in 2018. Altogether, the government has said it wants to sell stakes in at least 533 companies by 2020 through direct sales or IPOs.

This figure does not include dozens of companies that were on the 2017 list but were not put on the market last year. According to the latest publicly available government figures, Vietnam only managed 26 divestments in the first eight months of 2017 from a list of 135 companies. The target of 44 IPOs for last year was also missed, with only 38 IPOs completed by year-end, a government committee said.

Between mid-January and mid-February, IPOs of major SOEs, including refinery operator Binh Son, oil distributor PV Oil, power producer PV Power, rubber firm Vietnam Rubber Group (VRG), and power producer Genco 3, raised a total of around $800 million for the government.

To accelerate the privatization push, Vietnam issued a new regulation that took effect on January 1 to introduce a book building process, ease restrictions on strategic partnerships and tighten valuation procedures to minimize wrongdoings.

Book building allows companies to identify a range of prices and estimated demand from interested investors to give them a better indication of what IPO price to offer.

State-owned enterprises have so far mostly adopted the public auction method, which together with other restrictions has reduced appetite in even some of the more attractive state assets including dairy firm Vinamilk, Vietnam’s biggest firm by market value, according to Reuters.

The government has also eased restrictions on strategic partners, requiring them to be profitable for two years prior to acquisition, rather than three years, and reduced the lock-in period to three years from five years previously.

Vietnam has also set up a committee to oversee around VND5,000 trillion ($220 billion) worth of government assets in companies managed by different ministries, where vested interests have often played a major role in delaying privatization plans.

Major hurdles

However, despite these initiatives, the fundamental mismatch between the government's rhetoric on market-based valuations and its fixation on raising as much revenue as possible will not significantly reduce the problem of dubious valuations over the medium term. Executives at SOEs would rather risk overvaluing their firms and blame the market if sales disappoint than be held responsible for losing state assets by undervaluing them, according to the Economist Intelligence Unit, the research and analysis division of The Economist Group.

Analysts have also pointed out some factors keeping investors away, which include the small volume of shares offered, a lack of detailed information disclosure, weak business performance and poor corporate governance.

"There are some risks and challenges remaining in the Vietnamese economy but the biggest challenge will be that we want to grow faster but also in a sustainable manner at a time when there are unpredictable movements in the world economies,” Hue said.

The economy, which posted a total trade value last year that was 1.93 times bigger than its GDP, is susceptible to global turbulence that can “quickly have a direct impact on Vietnam in terms of trade, investment, currency,” he added.

The benchmark VN-Index closed at 1,120 on February 28, up a staggering 14 percent from the beginning of the year, which was the biggest gain worldwide and nearly three times more than the Nasdaq.

The index currently stands at 70 percent higher than in January 2017, making the Vietnamese stock market one of the world’s best performing and most attractive.

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