Vietnam Investment Arm Calls for Fewer State Stake Purchases

By Nguyen Dieu Tu Uyen

A Vietnamese government investment arm that’s been newly charged with buying stakes in state companies with failed public offerings is calling for scaled-down purchases, countering an aggressive government plan.
State Capital Investment Corp., which holds state stakes in listed companies, says it is asking the government to “narrow down and prioritize” the number of firms it has to invest in among the 340 businesses that are required to sell shares by end-2015, according to Deputy General Director Le Song Lai.
“We need from the government specific criteria for the stake purchases,” Lai said in a phone interview Oct. 10 in Hanoi. “The 340 companies is
too many. It will be very hard for us to do the job with such vagueness.”
Vietnam’s privatization of state-owned companies has lagged this year and the government raised just 2.23 trillion dong ($105 million) from initial public offerings, less than half the target for the shares sold. Prime Minister Nguyen Tan Dung has outlined a revamp of all state enterprises to spur growth as the economy is on course to expand below 7 percent for a seventh straight year.

Failed IPOs

“The real question is: Why are these IPOs failing?” said Michel Tosto, head of institutional sales at Viet Capital Securities in Ho Chi Minh City. “Asking the SCIC to step in is just a stopgap. It doesn’t really fix the issue. The SCIC belongs to the government. You are shifting the assets from the government to the SCIC. They are not totally independent. The SCIC needs to have the power to make IPOs more successful.”
The benchmark VN Index dropped 0.6 percent at the break in Ho Chi Minh City trading. It has gained almost 22 percent so far this year. The dong was little changed at 21,215 against the U.S. dollar.
Under a new regulation passed in September, SCIC, as the investment arm is commonly known, will make investments in government-controlled companies that fail to sell shares to the public in IPOs, Lai said. SCIC currently holds stakes in Vietnam Dairy Products JSC, the country’s second-biggest listed company, and FPT Corp., the largest listed telecommunications firm, among others.

Strategic Investor

SCIC is responsible for managing the government’s holdings in companies that have sold stakes to investors. It currently holds stakes in about 400 companies that have been privatized.
The company’s 2013 profit rose to 4.3 trillion dong, up 8 percent from 2012, according to data on its website. By contrast, net income for Vinamilk, the country’s second biggest-listed company, rose 12 percent to 6.53 trillion dong last year, according to data compiled by Bloomberg.
“Having us step in as a strategic investor in some state companies will help quicken the restructuring process,” Lai said. “However, we need the government to specify which industries, so that we can focus our resources.”
SCIC has also asked the government to allow it to take over the state’s ownership in some companies so that it doesn’t need to make as many purchases, Lai said.
Vietnam has held IPOs for 33 state companies this year through Aug. 21.