August 8, 2018

Foreign investors cool to Vinalines sale

Vietnamese government doubles down on offering

The initial public offering (IPO) of state-owned Vietnam National Shipping Lines (Vinalines) is expected to take place on the Hanoi Stock Exchange on 5 September.

Vinalines is seeking to raise about VND4.89 trillion ($210 million) through the exercise, which would see the company sell 488.8 million shares at VND10,000 ($0.43) per share.

Vinalines will nearly double shares on offer in the upcoming IPO after an unexpected end to a search for strategic investors, according to a statement carried on the Ministry of Transport (MOT) website.

Following a recently approved equitisation scheme, the previous government plan was for 207.2 million shares or a 14.8% stake in Vinalines to be offered to strategic investors.

South Korea-based SK Securities, a brokerage unit of South Korea’s third-largest conglomerate SK Group, tabled the sole concrete offer to become a strategic investor in Vinalines, but the move failed to materialise, as “SK Securities does not qualify to purchase the Vinalines’ stake,” according to a Vinalines statement.

The sale of a strategic interest in Vinalines was expected to draw interest from domestic and foreign investors thanks to the company’s improved business performance in recent years.

The deal was hyped as being one of the hottest mergers and acquisitions (M&A) deals in Vietnam in 2018.

Vinalines reported earnings of VND748 billion last year, an increase of 92% from 2016, after suffering losses in the early 2010s when several executives were jailed for mismanagement and embezzlement.

The Vinalines IPO will be the latest of the government’s divestment after raising $922 million from selling a stake in Vietnam Technological and Commercial Joint Stock Bank in an IPO in April.

Media reports overstate foreign interest

In June, Vietnamese media reported comments by a Vinalines representative that the shipping company had met with investors from Japan, Thailand and South Korea, such as Hyundai Motor, SK Holdings and Siam Cement Group, over the share acquisition.

Hyundai Motor, according to the Saigon Times, had officially registered to participate in the Vinalines equitisation.

Vinalines fails to find strategic investor

Vinalines, however, failed to find a suitable strategic investor and the MOT has now decided to double the number of shares on offer in the IPO and forgo the search for a strategic investor.

The new plan calls for 488.8 million shares, representing a 34.8% stake, to be sold in the public offering.

Another 2.8 million shares or 0.2% of charter capital will be sold to employees.

With the addition of stringent social requirements to capital requirements, bankers suggest that companies are shying away from the sale as they would want to hold a controlling stake of at least 51%.

At the end of the sale process, the Vietnamese state will hold a 65% stake in Vinalines.

The Vinalines IPO has been delayed several times as the company needed to undergo a longer-than-expected restructuring process.

Vinalines currently manages and operates a diverse fleet, including containerships, bulk carriers, oil tankers, and other types of cargo vessels.

The Vinalines fleet includes large bulk carriers of up to 73,000dwt, 1,800teu containerships and 50,000dwt oil tankers.

Of the total of 130.9 million tonnes of cargo shipped in 2017 by Vietnamese vessels, the Vinalines fleet accounted for 20.2% of the total.

By the end of 2017, Vinalines had divested of 39 related companies for aggregate revenues of VND2.4 trillion, resulting in earnings of VND360 billion.

Port business is another story

Other investors, such as Oman’s State General Reserve Fund, the country’s sovereign wealth fund, are said to be keen on cooperating with Vinalines in the seaport sector, rather than participating in the IPO.

Vinalines operates 15 seaports with a total annual capacity of 75 million tonnes, accounting for about a quarter of the country’s total port capacity.

In 2017, the development and communications strategy division of Vinalines signed a memorandum of understanding (MOU) with Rent-A-Port NV — the port investment and management company of Belgium’s Ackermans & van Haaren — related to possible cooperation on a grain terminal, processing area, and logistics system projects.

Specifically, Rent-A-Port is an engineering and investment firm, specialised in development of marine infrastructures and industrial zones.

The MOU included a provision allowing Rent-A-Port to acquire 10% of Vinalines when the company went public.

To date, the Rent-A-Port MOU has not been converted into a formal contract.