Vietnam privatisation pushed back, again

Bankers are optimistic about top Vietnamese conglomerates’ financing and M&A activity for 2014 but they are more hesitant about deals from public companies.

Vietnam Airlines, Vietnam Posts and Telecommunications (VNPT) and Vietnam Oil & Gas are slated for divestment, a point mentioned by Prime Minister Nguyen Tan Dung during a recent visit to New York. But Dung made no mention of process or timeframe.

“Progress has been slow but the government seems to be putting in more of an effort now,” said Pham Hong Son, senior manager at Viet Capital Securities.

Some of these mandates have been around for years and, despite the prime minister’s warm words, no one expects immediate progress.

Bankers cite factors such as “valuation process” and “due diligence”, the difficulty in segregating loss-making adventures in real estate and volatile international markets. Such details mask the real reason why these big deals have not occurred: because the bureaucrats and ministers controlling these assets do not want to sell them.

Companies are either crown jewels that spin off reams of cash – such as the mobile divisions of VNPT, one of which the government has slated to be spun out of the parent and listed – or are embarrassingly unattractive to foreign strategic investors.

Another challenge is finding buyers. “It’s hard to find strategic investors,” said a foreign investment bank’s country head in Ho Chi Minh City. “That leaves only domestic institutional and retail investors, but they’re not enough.”

Such investors do not meet the objectives of a privatisation – such as bringing in new thinking; providing access to new skills, markets or technology; and introducing rigour into corporate governance.

Some changes are in the works. The executive managers at VNPT were recently rotated back to the telecoms ministry because they were dragging their feet over spinning out their mobile unit, and replaced with bureaucrats meant to execute. The prime minister’s words also suggest privatisation remains on the cards, in some form.

Equitisation, the word used in Vietnam to describe the process of transforming an SOE into a joint-stock company, does not automatically lead to sale of shares, either. Petrovietam privatised its gas subsidiary two years ago, with the aim of selling 20% to a strategic buyer, but nothing has happened.

This is often because foreign buyers want to see improvements in governance and be better able to influence management – whether in SOEs, financial groups or private companies.