Where the action isn't
Vietnam's 30-month-old stock exchange is boring:
not enough listed companies, not enough investors,
not enough trades. Changes may take a while
HO CHI MINH CITY - Excitement swept a Ho Chi Minh City sports
stadium, but no one was watching soccer. The main
event on was an initial public offering by a new
company that manages toll roads. The offering, made in
a sports stadium because the company isn't listed on the
stock exchange, attracted a gaggle of 750
investors--including pregnant housewives--who began
lining up in the dead of night for the buying opportunity.
And within three hours, the Ho Chi Minh City
Infrastructure Investment Joint-Stock Co. sold its
available shares and raised 110 billion dong (about $7
million).
Emerging landscape
The ownership structure of
Vietnam's enterprises has
diversified in recent years from a
monolithic, entirely state-owned
system. Here's a snapshot:
- Listed companies on the Ho
Chi Minh City exchange: 19
- Listed companies with more
than $18 million registered
capital: 3
- Listed companies on Vietnam's
shadowy grey market: More
than 800
- State enterprises: 5,228
- Private companies: 91,743
- Private companies with at least
$650,000 in registered capital:
3,500
- Investors with brokerage
accounts at the Ho Chi Minh
City exchange: 12,000
- Investors who regularly make
trades: 1,000
- Registered foreign institutions
and individuals: 60
If only the official stock exchange were as vibrant. The
enthusiasm at the sports stadium points to Vietnam's
potential to channel private savings into corporate
investment. But across town at the official stock
exchange, the scene is dreary. Trading volume in an
average month on the exchange, where daily turnover is
down to 2 billion dong a day, is less than half what the
toll-road operator did in three hours. The total market
value of listed companies on the exchange is just $173
million, less than 0.5% of Vietnam's GDP.
Since launching operations in July 2000, the Ho Chi
Minh exchange hasn't come close to fulfilling its
promise. The companies themselves aren't bad--15 of
the 19 listed are routinely profitable. But the actual
market performance has been especially weak recently,
trading about 70% below its high point last year, its first
full year of operation.
This poor performance comes despite the fact that,
increasingly, Vietnam has both companies in need of
capital and investors eager to put savings to profitable
use. Vietnam's corporate landscape has evolved
rapidly. (See box below.) "In the long term, it's
important to widen avenues of funding, and the
stockmarket is one way," says Deepak Khanna, the
Vietnam country manager for the International Financial
Corp., the financing arm of the World Bank. An
obvious fix, he says, would be to list more companies:
"If you have a broader universe on the equity side, it
would help."
In the short run, Vietnam's State Securities Commission
has plans to do just that, adding as many as 20
companies by the end of next year. But often, changes
seem like little more than tinkering: Another reform will
allow share prices to move each day within a 5% band
as opposed to a 3% band.
The changes are a start, but it is clear that Vietnam
needs to do more. One option would be allowing
foreign-invested companies to list. Brokers report that
roughly a dozen such companies have expressed
interest in having their shares traded publicly.
Another possible boost: Tap Vietnam's rapidly growing
private sector for listing candidates. Bigger private
firms, however, are apparently in no hurry to go to the
market to raise capital because they don't need the
money. They are benefiting from a new national policy
that expands lending to private firms. And most have
not yet developed plans for major expansion or
modernization, despite looming competition from the
Asean Free-Trade Area, which means they wouldn't
necessarily be in a position to put the money to
productive use even if they had it.
The vast majority of Vietnam's 91,743 private
companies are simply too small to list. More than 96%
are designated by the government as small and
medium-sized enterprises. With average registered
capital only about one-tenth of the minimum for a
company that wants to list, their potential is for the long
term, but not sooner. "There's a lot of fodder for the
market in the future," observes one securities expert in
Ho Chi Minh City.
For private companies that are big enough, other
problems often arise. An estimated 3,500 private
Vietnamese companies meet capital requirements for
listing, but most abhor the spotlight. Many feel they
couldn't survive without cheating on taxes, which can
take up to 32% of corporate income. Some former
state-owned firms trade on a shadowy grey market that
exists outside any official regulation in Ho Chi Minh
City. These companies don't want to be held
responsible by pesky shareholders.
Probably the surest way to make the stock exchange
more attractive would be to privatize and list some of
the bigger, more profitable and more reputable
state-owned enterprises. But Vietnam's ruling
Communist Party appears keen to retain full control of
such blue chips as Vinamilk, Saigon Tourist and
Vietnam Airlines. At a recent seminar in Hanoi,
accounting firm PricewaterhouseCoopers Vietnam
projected that blue-chip state firms aren't likely to list
until about 2010. That's a long time to wait.
By Margot Cohen - The Far Eastern Economic Review - November 21, 2002.
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