Vietnam's stock market scents growth as Hanoi prepares for 'equitisation'
Since opening nearly five years ago, Vietnam's stock market has been more of an amusing oddity than a serious venue for local companies to raise much-needed capital for growth or for big foreign investors to get exposure to Vietnam's promising growth story.
With just 28 listed companies 10 valued at under $4m (EU3m, £2.1m) each and a total market capitalisation of around $270m, the Ho Chi Minh City stock trading centre is still far too small for major international funds. A handful of Vietnam-dedicated foreign funds and many locals are invested, but the market's seven "blue chips" long ago hit their 30 per cent foreign ownership ceiling, and foreign trading in those stocks was paralysed for much of last year. For seven months until a rally last month, the market traded listlessly between 229 and 239 points, and is now trading between 240 and 250. Daily trading volumes dropped from $1.4m in March 2004 to around $100,000 to $150,000 for much of the first quarter.
But after five lacklustre years, Tran Duc Sinh, the market's director, says Vietnam's stock trading centre is poised for major expansion as Hanoi's communist regime accelerates the reform and sell-off of its massive state sector. In a country still enamoured of official targets, authorities expect the market's capitalisation to reach $1bn-$1.5bn 2 per cent to 3 per cent of gross domestic product by the end of this year.
"We expect 2005 to be a great leap for the stock market," Mr Sinh told the Financial Times. "Big banks, insurance companies, telecommunications will be 'equitised' and after that we have a plan to list them." State enterprise reform has proceeded slowly in recent years, which Mr Sinh attributes to "a conflict between those who are still conservative and those who were radical". But he insists the pace of change is quickening. In February, Hanoi sold an 11.5 per cent stake in state dairy company Vinamilk, raising $36m through a transparent Dutch auction supervised by the stock exchange.
The average price of VnD313,000 per share was well above the minimum bid of VnD220,000 delighting officials while the highest bidder paid around 14.5 times 2004 earnings. The average purchase price implied a market value for Vinamilk of $310m, far bigger than any company yet listed. Vinamilk, now traded in the unregulated over-the-counter market, has yet to list on the formal exchange. While Mr Sinh says it will soon, some investors predict the listing will be delayed until next year, so Vinamilk can reap full benefits of special tax incentives for newly listed companies.
This year, Hanoi aims to turn more than 700 amorphously structured, state-controlled businesses into "equitised" companies with clear shareholding structures as a first step towards divestment. Vietcom Bank, one of the big five state commercial banks, is due "equitise" at the end of the year. Kevin Snowball, chief representative of PXP Vietnam Asset Management, believes the success of Vinamilk's auction will indeed spur an acceleration of other asset sales, including some key state businesses, and listings. "They have started to realise the value of what they own," he said.
Not all the upcoming listings are expected to be former, or current, state enterprises. A small subsidiary of major local confectionery-maker Kinh Do last year became the first truly private enterprise to list. This year, both Asia Commercial Bank and Sacom Bank, two of the biggest "joint stock", or private, commercial banks are expected to list after concluding negotiations with potential strategic partners.
Such issues could entice bigger institutions to look more closely at the market. "When Vietnam gets to critical mass, it starts to be much more interesting to a much wider audience," Mr Snowball said. With last month's rally which saw the market hit 251 before it fell back, trading volumes have risen to more than $500,000. Yet Vietnam's equity market and potential foreign investors still face challenges. Dedicated Vietnam funds are aggressively taking stakes in well-managed companies, and there is likely to be strong competition for available shares, given the existing foreign equity cap. The narrow 5 per cent daily trading band also makes the market illiquid, a problem that will not be easily changed even if foreign equity caps are, as expected, raised.
While Mr Snowball has suggested the creation of a foreign board to facilitate greater trading, exchange officials have so far been non-committal. The market also needs, and will hopefully soon obtain, a new, more robust trading system to handle greater volumes and simultaneous trading. Despite this, Mr Sinh believes the first five years of stock trading has won over the sceptics. "In Vietnam, from big officials to the public, everyone has an idea what the stock market is," he said. "The government has seen the important role of the stock market for the development of the economy."
By Amy Kazmin - The Financial Times - April 19, 2005
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