Vietnam Airlines readies for IPO in November

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Vietnam AirlinesVietnam Airlines plans to sell a stake in an initial public offering (IPO) in November this year, a move seen as a test of the government’s commitment to reforms and its ability to promote the Southeast Asian nation’s economic growth story.

Global investor response to the national flag carrier’s planned float could determine the course of Hanoi’s privatisation program as it plans to sell stakes in more than 400 state-owned companies and keep the economy growing at a rapid clip.

Investors have been unenthusiastic about Vietnam’s privatisation campaign, partly because of a lack of transparency in many state-run companies and an inordinate amount of time taken for a company’s shares to start trading after their IPOs.

Many of the state-owned companies that have sold shares this year in Vietnam have been poorly received by investors despite the strong performance of the benchmark stock index, which is nearly 25 per cent higher year-to-date. In the first quarter, only a quarter of the total shares offered by 13 companies were sold.

“The IPO of Vietnam Airlines is going to be seen as an indicator of how resolved the government is with the reform process,” said Tu Vu, the head of research at Viet Capital Securities in Ho Chi Minh City.

Vietnam Airlines is aiming to raise 1.5 trillion dong ($70.8 million) for the government through the sale of a 5 per cent equity stake in the state-run carrier to public investors, its president and chief executive, Pham Ngoc Minh, said on August 27 on the sidelines of a conference in Hanoi.

The airline is also speaking to several potential strategic investors to sell a separate 20 per cent stake, Minh said. These include more than one potential investor from Japan, he said, adding that the company could sell stakes to one or more strategic investors, though the total wouldn’t exceed 20 per cent. The CEO, however, declined to give an estimate of the amount the strategic sale could raise.

The company’s planned sale values Vietnam Airlines at more than $1.4 billion. After the float, the government would retain a 75 per cent stake in the airline, Minh said, adding that Hanoi plans to gradually sell more of its equity subsequently, cutting it to 65 per cent.

He added he expects the company, whose IPO has been in the works for several years, to receive final approvals for the sale in the coming days.

Vietnamese state-owned enterprises do tend to become more efficient as private companies, said Kevin Snowball, the chief executive of PXP Asset Management in Vietnam.

It is unlikely, however, that Vietnam Airlines could become efficient enough to justify the high valuation the government is targeting, he said.

“At the moment, based on what we know, we’re not excited,” Snowball said.

Additionally, Asian airlines have been struggling in recent years from an onslaught of discount carriers such as Malaysia’s AirAsia that have taken away budget-conscious customers, especially tourists. At the same time, airlines based in the Persian Gulf region such as Emirates Airline and Qatar Airways have eaten into Asian carriers’ long-haul operations.

Vietnam Airlines is banking on tourism for growth. Nearly 5.5 million foreign tourists visited the country in the first eight months of the year, a 12 per cent year-over-year increase, according to the Vietnam National Administration of Tourism.

In recent years, Vietnam Airlines has ordered new planes to expand its fleet – currently at just over 80 aircraft – to tap growth. The carrier will receive 12 new planes, including five Boeing 787s and four Airbus A350s, by the end of 2015, Minh said, adding that he expects the market to grow by double-digits over the next five years.

Still, the company is likely to face stiff competition, especially from VietJet Air, a rapidly expanding local budget carrier that also has ambitions to fly long-haul routes.

“The Vietnamese market has huge growth potential but with low-cost carriers and foreign full-service carriers becoming more intrusive, Vietnam Airlines has challenges to overcome as it starts to accelerate expansion,” said Brendan Sobie, an analyst at CAPA-Centre for Aviation.

Minh said he was aware of some of the concerns about the carrier’s offering.

“I believe that transparency will play an important role in the IPO and the possible listing in the future, and Vietnam Airlines has achieved transparency. The market will tell if the IPO will be a success,” he said.

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Reading Time: 3 minutes

Vietnam Airlines plans to sell a stake in an initial public offering (IPO) in November this year, a move seen as a test of the government’s commitment to reforms and its ability to promote the Southeast Asian nation’s economic growth story.

Reading Time: 3 minutes

Vietnam AirlinesVietnam Airlines plans to sell a stake in an initial public offering (IPO) in November this year, a move seen as a test of the government’s commitment to reforms and its ability to promote the Southeast Asian nation’s economic growth story.

Global investor response to the national flag carrier’s planned float could determine the course of Hanoi’s privatisation program as it plans to sell stakes in more than 400 state-owned companies and keep the economy growing at a rapid clip.

Investors have been unenthusiastic about Vietnam’s privatisation campaign, partly because of a lack of transparency in many state-run companies and an inordinate amount of time taken for a company’s shares to start trading after their IPOs.

Many of the state-owned companies that have sold shares this year in Vietnam have been poorly received by investors despite the strong performance of the benchmark stock index, which is nearly 25 per cent higher year-to-date. In the first quarter, only a quarter of the total shares offered by 13 companies were sold.

“The IPO of Vietnam Airlines is going to be seen as an indicator of how resolved the government is with the reform process,” said Tu Vu, the head of research at Viet Capital Securities in Ho Chi Minh City.

Vietnam Airlines is aiming to raise 1.5 trillion dong ($70.8 million) for the government through the sale of a 5 per cent equity stake in the state-run carrier to public investors, its president and chief executive, Pham Ngoc Minh, said on August 27 on the sidelines of a conference in Hanoi.

The airline is also speaking to several potential strategic investors to sell a separate 20 per cent stake, Minh said. These include more than one potential investor from Japan, he said, adding that the company could sell stakes to one or more strategic investors, though the total wouldn’t exceed 20 per cent. The CEO, however, declined to give an estimate of the amount the strategic sale could raise.

The company’s planned sale values Vietnam Airlines at more than $1.4 billion. After the float, the government would retain a 75 per cent stake in the airline, Minh said, adding that Hanoi plans to gradually sell more of its equity subsequently, cutting it to 65 per cent.

He added he expects the company, whose IPO has been in the works for several years, to receive final approvals for the sale in the coming days.

Vietnamese state-owned enterprises do tend to become more efficient as private companies, said Kevin Snowball, the chief executive of PXP Asset Management in Vietnam.

It is unlikely, however, that Vietnam Airlines could become efficient enough to justify the high valuation the government is targeting, he said.

“At the moment, based on what we know, we’re not excited,” Snowball said.

Additionally, Asian airlines have been struggling in recent years from an onslaught of discount carriers such as Malaysia’s AirAsia that have taken away budget-conscious customers, especially tourists. At the same time, airlines based in the Persian Gulf region such as Emirates Airline and Qatar Airways have eaten into Asian carriers’ long-haul operations.

Vietnam Airlines is banking on tourism for growth. Nearly 5.5 million foreign tourists visited the country in the first eight months of the year, a 12 per cent year-over-year increase, according to the Vietnam National Administration of Tourism.

In recent years, Vietnam Airlines has ordered new planes to expand its fleet – currently at just over 80 aircraft – to tap growth. The carrier will receive 12 new planes, including five Boeing 787s and four Airbus A350s, by the end of 2015, Minh said, adding that he expects the market to grow by double-digits over the next five years.

Still, the company is likely to face stiff competition, especially from VietJet Air, a rapidly expanding local budget carrier that also has ambitions to fly long-haul routes.

“The Vietnamese market has huge growth potential but with low-cost carriers and foreign full-service carriers becoming more intrusive, Vietnam Airlines has challenges to overcome as it starts to accelerate expansion,” said Brendan Sobie, an analyst at CAPA-Centre for Aviation.

Minh said he was aware of some of the concerns about the carrier’s offering.

“I believe that transparency will play an important role in the IPO and the possible listing in the future, and Vietnam Airlines has achieved transparency. The market will tell if the IPO will be a success,” he said.

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