Sell-offs could drive market in Vietnam
HO CHI MINH CITY - The Vietnamese stock market may grow eightfold by value to $24 billion in the next four years as government-owned companies, including Electricity of Vietnam and Mekong Delta Housing Bank, sell shares.
Vietnam wants to increase the value of its stock market to between 20 percent and 30 percent of gross domestic product from 6 percent, said Tran Dac Sinh, director of the Ho Chi Minh City Securities Trading Center. The current average for stock markets in Asia is about 127 percent of GDP, according to estimates by Merrill Lynch.
"I really want to see this securities trading center become as big as other stock exchanges in the region," Sinh said in a recent interview.
The Vietnamese government is drawing up a securities law to improve companies' disclosure standards, hoping to attract more international investors to an economy it says will grow as much as 8 percent annually in the next decade.
Sales of shares in state-owned companies could accelerate stock market growth as the government seeks to sharpen the ability of those firms to compete after Vietnam joins the World Trade Organization this year.
"Even if it doubles, it's still not a very large market, but obviously it's a quantum leap," said Kelvin Lee, head of investment banking at VinaCapital Group in Ho Chi Minh City, which manages $600 million of investments in Vietnam.
"The question is whether it has sufficient improvement to attract the real, serious investors."
Foreign Trade Bank of Vietnam will sell shares next year, followed by Mekong Delta Housing Bank, Investment & Development Bank of Vietnam and Industrial & Commercial Bank of Vietnam, Sinh said. VietNam Insurance, Hochiminh City Insurance, Electricity of Vietnam, Vietnam Post & Telecommunications and steel and cement makers will sell shares by 2010, he said. All the companies are government-owned.
"We are going to see a very significant transformation of the Vietnamese stock market over the next two to three years," said Spencer White, Hong Kong- based Asian strategist at Merrill. "It's going to have a lot more breadth and a lot more depth, and it's going to be a combination of both the transitions from the over-the-counter market as well as these privatizations."
The Communist Party-ruled nation, which began market-oriented reforms in 1986, has the fastest-growing stock market in Asia. There are 48 companies on the six-year-old Ho Chi Minh City Securities Trading Center, with a combined market value of about $3 billion. Market value on the Vietnamese exchange increased 50 percent on July 12 after shares in Saigon Thuong Tin Commercial Joint-Stock Bank made their debut.
Twenty-two more companies will sell shares in the next four months, raising market value on the exchange to 10 percent of Vietnam's gross domestic product by the end of the year, Sinh said. Gross domestic product was $53 billion at the end of 2005, according to data from the General Statistics Office. The economy is projected to grow 8 percent this year.
Vietnam has been selling shares in companies after first converting their ownership structure into stockholdings. The shares tend first to be sold to a company's managers or other employees.
"We have to accelerate" the transformation, Sinh said. "By 2010, the process must be finished."
Vietnam wants to encourage about 2,400 companies whose shares change hands in the unregulated over-the- counter market to formally trade stock. Those companies together trade between five and 10 times the main board's value, Merrill said in a report in April.
The informal market doesn't subject participants to the same disclosure requirements as those who sell shares on the stock exchange.
"The problem is many of these companies don't meet the requirements, so rather than list on the stock exchange they issue shares to their customers and other people, their friends and families," said Peter Tebbutt, a director at Fitch Ratings in Hong Kong. "The over-the-counter market is getting quite well developed, it's much larger than the official market. That makes it more attractive."
The Ho Chi Minh City Securities Trading Center's VN index, which tracks stocks traded on the main board, has lost 24 percent of its value since reaching a record 632.69 on April 25.
A securities law that comes into effect in January seeks to lay out standards of disclosure and governance for all companies, whether they trade over- the-counter or on exchanges. Vietnam is also offering tax incentives for companies to shift the trading of their shares to the bourse.
"In Vietnam, the question is always implementation," said Jonathan Pincus, senior country economist at the United Nations Development Program in Hanoi. Will accountability and transparency provisions "be enforced so that companies will have to abide by the laws and investors know exactly what they're getting when they buy shares?"
Having a capital market is very important to Vietnam's future, Pincus said.
"At the same time, you need capital markets that are transparent, where companies are actually reporting what they're doing," he said. "The quality of management is certainly improving. But they still have a long way to go."
By Netty Ismail & Stephen Engle - Bloomberg News - August 31, 2006.
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