Vietnam Airlines IPO tests appetite for state sell-offs

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Vietnam’s long-awaited state company sell-off is approaching a crunch as investors press for terms for the flagship part-privatisation of the national airline, the Financial Times reported.

The proposed offer of Vietnam Airlines shares is seen a crucial to kick-starting a stuttering plan by the southeast Asian country’s government to offload stakes in more than 430 companies.

Investors say that a scheme for the national carrier to raise an initial $51 million in the market must be pushed through to restore credibility to the privatisation programme.

“It’s do or die,” said Alan Pham, chief economist at VinaCapital, a fund manager. “It’s been delayed several times already.”

The privatisation programme is part of a broader official effort to attract investment to a country that is increasingly reliant on foreign manufacturing, but suffered a blow after anti-Chinese riots in May ravaged overseas-owned factories around the country.

Vietnam airlinesVietnam Airlines wants to offer up to 3.5 per cent of its shares publicly in a deal that values the company at $1.5 billion, barely half the $2.7 billion valuation made previously by financial advisers, according to state media.

The carrier’s proposal – which still has to be approved by the government – would also involve selling a 20 per cent stake to a strategic partner, such as another airline.

Foreign and local investors have welcomed the news of movement in a sale process that was due to be finished last year, although they warn they will need to see more detail before judging if the airline is attractive.

Excitement over its dominant position – a 60 per cent share – in a thriving domestic flight market in a country of 90m people is tempered by the small size of the potential stake and a lack of information on the company’s financial position and governance.

The airline said in January that it made a gross profit last year of about $25 million, beating its target by a third, on sales of about $3.4 billion.

Some analysts say the carrier’s fate is likely to dictate the success of a privatisation process that includes big companies in industries from textiles to logistics, but has so far seen only stakes in a scattering of small businesses sold.

“If Vietnam Airlines is a flop, it’s going to have an impact on a whole bunch of other companies,” said one foreign government official who covers the country’s economy and business. “If their crown jewel turns out not to be a jewel at all, they will have to go back to the drawing board.”

Many investors see privatisation prospects in Vietnam as improving, amid gradual economic recovery and the Communist government’s need for investment to help reach target growth rates. Vu Duc Dam, deputy prime minister, vowed last week that his administration was committed to the “road-map to privatisation”.

“The government needs the help of the business community,” he told a conference in Ho Chi Minh city organised by Forbes Vietnam. “We must push our 5 to 6 per cent growth to 8 to 9 per cent in a short period of time.”

But investors are concerned about how much control over the state companies due for part privatisation will be ceded by either the government, or corrupt officials who benefit from the status quo.

The near-bankruptcy and subsequent restructuring of Vinashin, a shipbuilder that defaulted on a $600 million internationally syndicated loan in 2010, has showed the reforms needed across an inefficient state sector.

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Reading Time: 3 minutes

Vietnam’s long-awaited state company sell-off is approaching a crunch as investors press for terms for the flagship part-privatisation of the national airline, the Financial Times reported.

Reading Time: 3 minutes

Vietnam’s long-awaited state company sell-off is approaching a crunch as investors press for terms for the flagship part-privatisation of the national airline, the Financial Times reported.

The proposed offer of Vietnam Airlines shares is seen a crucial to kick-starting a stuttering plan by the southeast Asian country’s government to offload stakes in more than 430 companies.

Investors say that a scheme for the national carrier to raise an initial $51 million in the market must be pushed through to restore credibility to the privatisation programme.

“It’s do or die,” said Alan Pham, chief economist at VinaCapital, a fund manager. “It’s been delayed several times already.”

The privatisation programme is part of a broader official effort to attract investment to a country that is increasingly reliant on foreign manufacturing, but suffered a blow after anti-Chinese riots in May ravaged overseas-owned factories around the country.

Vietnam airlinesVietnam Airlines wants to offer up to 3.5 per cent of its shares publicly in a deal that values the company at $1.5 billion, barely half the $2.7 billion valuation made previously by financial advisers, according to state media.

The carrier’s proposal – which still has to be approved by the government – would also involve selling a 20 per cent stake to a strategic partner, such as another airline.

Foreign and local investors have welcomed the news of movement in a sale process that was due to be finished last year, although they warn they will need to see more detail before judging if the airline is attractive.

Excitement over its dominant position – a 60 per cent share – in a thriving domestic flight market in a country of 90m people is tempered by the small size of the potential stake and a lack of information on the company’s financial position and governance.

The airline said in January that it made a gross profit last year of about $25 million, beating its target by a third, on sales of about $3.4 billion.

Some analysts say the carrier’s fate is likely to dictate the success of a privatisation process that includes big companies in industries from textiles to logistics, but has so far seen only stakes in a scattering of small businesses sold.

“If Vietnam Airlines is a flop, it’s going to have an impact on a whole bunch of other companies,” said one foreign government official who covers the country’s economy and business. “If their crown jewel turns out not to be a jewel at all, they will have to go back to the drawing board.”

Many investors see privatisation prospects in Vietnam as improving, amid gradual economic recovery and the Communist government’s need for investment to help reach target growth rates. Vu Duc Dam, deputy prime minister, vowed last week that his administration was committed to the “road-map to privatisation”.

“The government needs the help of the business community,” he told a conference in Ho Chi Minh city organised by Forbes Vietnam. “We must push our 5 to 6 per cent growth to 8 to 9 per cent in a short period of time.”

But investors are concerned about how much control over the state companies due for part privatisation will be ceded by either the government, or corrupt officials who benefit from the status quo.

The near-bankruptcy and subsequent restructuring of Vinashin, a shipbuilder that defaulted on a $600 million internationally syndicated loan in 2010, has showed the reforms needed across an inefficient state sector.

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