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Vietnam Rubber IPO falls far short of Hanoi's target

Foreign ownership rules, slew of upcoming IPOs may have curbed investor appetite

The Ho Chi Minh City stock exchange opened in 2000. (Photo by Ken Kobayashi)

HO CHI MINH CITY -- Vietnam's leading rubber plantation and processing company was only able to sell 21% of the total shares offered in an initial public offering Friday, a disappointing result that follows at least two unsatisfactory auctions of state-owned enterprises in the second half 2017.

State-owned Vietnam Rubber Group raised 1.3 trillion dong ($57 million) through the IPO. A total of 100.7 million shares were sold out of the 475.1 million shares on offer in the auction at the Ho Chi Minh City stock exchange, with an average price of 13,011 dong, almost the same as the offered price of 13,000 dong a share. The proceeds of the IPO were well below the 6.2 trillion dong target that was set based on Hanoi's privatization plans.

The disappointing auction followed the December IPO of Song Da Corp., Vietnam's leading contractor for hydropower projects, in which just 0.35% of the total offered volume of 219 million shares was sold. In addition, Investment and Industrial Development Corp., or Becamex, sold only 6% of its offered shares in December.

On Friday, VRG put 11.8% of its outstanding shares on sale. But analysts say restricting foreign strategic investors has driven away investors. VRG plans to sell another 11.8% to a domestic strategic partner. The government plans to retain 75% of the company.

VRG's auction target of 6.2 trillion dong was similar in size to that of PV Power, one of the three subsidiaries of Vietnam National Oil and Gas Group, or PetroVietnam, which completed their successful IPOs in January. PV Power said on Wednesday it raised roughly 7 trillion dong in January's successful IPO. It sold 468 million shares, or 20% of the offered stake, with an average price of 14,938 dong apiece -- 3.7% higher than the offered price. Meanwhile, the group's retail unit PV Oil on Jan. 25 raised 4.1 trillion dong from the sale of a 20% stake. The shares opened at 20,196 dong apiece, 50% higher than the offered price of 13,400 dong. On Jan 17, Binh Son Refinery raised 5.5 trillion dong from the sale of 241 million shares, or an 8% stake. The average price was at 23,043 dong a piece, 57% higher than the offered price.

A plantation worker scrapes rubber latex at Ham Nghi rubber forest in Huong Tra village, south of Hanoi.   © Reuters

Given the contrasting IPO outcomes for energy-related companies and VRG, an analyst said that the rubber company was not ready to go public. It had already delayed its IPO last year, citing the decline in the global natural rubber price, while the group's complicated corporate structure was another inhibitor. Ongoing investigations into the group's losses have also discouraged investors from bidding.

Some investors say the local stock market is starting to struggle to absorb a series of share auctions and listings of heavyweight SOEs. In the first two months of 2018 alone, the stock market will have seen five IPOs -- four to date -- with total offered shares of more than 1.6 billion units, valued at 25.7 trillion dong based on the offered price.

Many investors may have shifted their focus to other upcoming IPOs and listings. Next Friday Power Generation Corporation 3, or Genco 3, a unit of Vietnam Electricity, will launch an IPO on the Ho Chi Minh bourse, offering some 267 million shares, or a 12.8% stake, at the starting price of 24,600 dong apiece. The government expects to receive some 6.5 trillion dong from this sale. Genco 3 also plans to sell a 36% stake to strategic investors after the IPO, to reduce state ownership to 51%. SOEs including Vietnam Airlines, Airports Corporation of Vietnam and Vietnam National Textile and Garment Group are set to list this year.

VRG is the leader in domestic natural rubber production, accounting for one third of the country's natural rubber production area, and its sales represented 32% of total rubber sales volume in Vietnam last year.

The company said on Friday following the auction that it will ask the government to change some of the conditions for investors, including raising the foreign ownership limit and allowing foreign investors to bid for a strategic stake later.

VRG was considered one of the major state enterprises being urged to go public in the communist-led country. Hanoi is desperate to raise funds through aggressive IPOs in order to fund big-ticket infrastructure investments. In the 2018 budget, state revenue is projected at $58 billion, with expenditure of $67 billion. The expected deficit of $9 billion will have to be covered by borrowing, while payments on principal total $7 billion this year.


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