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Vietnam Airlines lists shares as state aims to revive divestment push

Offering that values carrier at $2.5bn expected to be biggest SOE listing of year

Vietnam Airlines' share listing on May 7 is seen as a means of building confidence in the government's divestment push.

HO CHI MINH CITY -- Vietnam Airlines listed more than 1.4 billion shares on the Ho Chi Minh City Stock Exchange on Tuesday in a move expected to breathe new life into the government's efforts to divest from a wide range of state companies.

Shares were offered at 40,600 dong apiece, putting the carrier's valuation at 57 trillion dong ($2.5 billion), and closed the day slightly down. But with only around 6% of total shares now available for trading, analysts say the listing is more important as a symbol of the government's renewed commitment to its divestment push, which has stalled over the past year amid corruption investigations, valuation difficulties and global stock market turmoil.

The government intends to reduce its stake in Vietnam Airlines to 51% this year from its current 86.19%. 

Vietnam Airlines is also seeking around $3.7 billion in additional funding to update its fleet by 2025. It is expected to order between 50 and 75 new narrow-body aircraft from both Airbus and Boeing. "Reducing state ownership, issuing shares and raising charter capital are among the options Vietnam Airlines will take to raise funds for the future expansion," Vietnam Airlines Chairman Pham Ngoc Minh said at the listing ceremony.

The carrier is among several state-owned enterprises slated for divestment in 2019, along with Vietnam National Textile and Garment Group, Vietnam National Petroleum Group, Vietnam Pharmaceutical Corp. and Hanoi Beer. Foreign ownership in Vietnam Airlines, which is capped at 30% based on local regulations, stands at just 9.4%, including 8.77% held by its strategic partner, ANA Holdings of Japan.

Tuesday's listing on the Ho Chi Minh exchange, the biggest stock exchange in Vietnam, is expected to help the airline attract greater investor attention. The company made its initial public offering in 2014 and listed on the secondary market in 2017.

"The listing will enhance the transparency and improve management to attract more investors, especially local and international financial institutions, paving the way for the state's divestment plan to reduce ownership in the carrier to 51%," said Nguyen Hoang Anh, chairman of Vietnam's Committee for State Capital Management (CMSC), which represents Vietnamese government ownership at Vietnam Airlines.

CMSC, established in February 2018, was designed to manage Vietnam's state investment in the country's 19 biggest groups and corporations, including State Capital Investment Corp., Vietnam Electricity, PetroVietnam, Vietnam Rubber Group, Airports Corporation of VietNam, Vietnam Railways, Vietnam Posts and Telecommunications Group, and Vietnam Airlines. The total value of state equity in these companies was over 1,000 trillion dong ($43 billion) and the total value of assets was 2,300 trillion dong as of December 2017.

"The process of listing and reducing state ownership at the carrier fell behind the schedule [in the initial plan]," Minh told the Nikkei Asian Review at the listing event. "However, our divestment plan has been sent to the government, and we will start right after we receive approval from the prime minister." He added, however, that this plan is not likely to be completed in 2019.

Vietnam Airlines will be the biggest SOE listing on the main market this year, according to market insiders, and it is seen as an important move for the carrier, indicating its determination to improve business efficiency and transparency. The move is also aimed at giving greater access to financial investors, helping increase stock liquidity and maximizing investment value for shareholders.

Moreover, analysts say, the main purpose of the listing is to prepare the way for other SOEs to move forward with their own state capital divestments.

"As the national carrier, this is an important message to the public, and is confidence-building. The listing seems to indicate progress in the long-awaited of divestment of Vietnam Airlines," Josephine Yei Pheck Joo, CEO of SaigonBank Berjaya Securities, told Nikkei.

The Vietnamese government initially aimed to divest from 406 SOEs between 2017 and 2020. More than 100 SOEs did not complete the process in 2017 and 2018, including Petrolimex and MobiFone, which asked for a delay. This does not include 62 SOE divestments planned for this year. Meanwhile, only one state company, Viglacera Corp., carried out its divestment in the first quarter of 2019.

In a press conference last week, a government representative acknowledge that Hanoi has been lagging behind its privatization and divestment schedule since mid 2018, mainly due to difficulties regarding the valuations of SOEs.

Josephine added that the U.S.-China trade dispute, which erupted in April 2018, disrupted share prices worldwide and also affected Vietnam, which caused many state companies to delay their plans to list. This includes Vietnam Airlines, which had planned to list shares on the Ho Chi Minh City market last year.

Analysts said the pace of Vietnam's divestments will pick up in 2019 and 2020 to support infrastructure investment, a key reason they are being carried out in the first place. Hanoi has a long and ever-growing list of infrastructure projects that require capital, and these projects are critical to Vietnam's continued economic growth. "At present, Vietnam's public debt-to-GDP is basically at the 65% statuary ceiling, so the government will need to re-accelerate its privatization efforts to pay for increased outlays on infrastructure development," said Andy Ho, chief investment officer of VinaCapital.

Hanoi has introduced some securities regulations and IPO and divestment methods, including book-building, to help SOEs attract good investors for their privatization plans.

However, some observers pointed out that many SOEs are saddled with loss-making projects, including Vietnam Steel Corp. and Vietnam National Chemical Group, which has kept investors away. The reach of the anti-corruption campaign led by the general secretary of the Vietnamese communist party, which imprisoned many high-ranking officers, has also hampered the process.

Last weekend, Vu Van Ninh, the former deputy prime minister of Vietnam, and other leaders of the Ministry of Transport were accused of serious violations in the privatization and divestment processes of several SOEs under the ministry between 2011 and 2016. The case was linked to Dinh La Thang, a Vietnamese politburo member who was transport minister at that time and is currently serving a 13-year prison sentence for economic management violations during his time as chairman of PetroVietnam.

There could be a direct impact on the government's targets for this year as SOE leaders worry about falling afoul of the campaign, said a local expert speaking on condition of anonymity.


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