September 12, 2018

Investors cool to Vinalines IPO

The initial public offering (IPO) of state-owned Vietnam National Shipping Lines (Vinalines) on 5 September on the Hanoi Stock Exchange proved to be a colossal flop.

The flop comes amid weakness in the country’s equity market that has come off record highs hit this year, and a sharp drop in shares of recently listed state-owned firms.

The outlook continues to be muddy for the broader shipping industry that has been in a crisis for over a decade with an oversupply of vessels triggering a wave of bankruptcies.

Vinalines sought to raise about VND4.89 trillion ($210 million) through the exercise, which would see the company sell about 490 million shares — a 34.8$ stake — at VND10,000 ($0.43) per share.

Instead, Vinalines raised just over VND54.4 billion ($2.34 million) from the IPO.

The deal attracted 42 investors with the highest bid at VND13,000 per share and the lowest at VND10,000.

Vinalines sold more than 5.44 million shares — just over 1.1% of shares on offer — at an average share price of VND10,002.

Of shares sold, nearly 5.14 million were purchased by 40 individual investors, while the remaining 300,000 shares were sold to institutional investors.

Foreign investors accounted for the sale of 6,200 shares.

The state still holds a 65% stake, equivalent to 912.9 million shares, post-IPO.

Government forced to rejig share offering

Vinalines failed to find a suitable strategic investor and the MOT decided to double the number of shares on offer in the IPO and forgo the search for a strategic investor, according to a statement 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 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 has been able to cut debt from VND9.1 trillion ($400 million) in 2014 to VND2.61 trillion in 2017.

As shown in audited financial statements, Vinalines’ return on assets (ROA) was 5.5% in 2015, 13.7% in 2016, and 1.9% in 2017, while return on equity (ROE) was 9.5%, 21.0%, and 2.5% respectively.

The ratios were lower than the industry average.

While the Vinalines IPO was unsuccessful, the government raised $922 million from selling a stake in Vietnam Technological and Commercial Joint Stock Bank in an IPO in April.

Media reports over-state 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, including 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

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

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

Vinalines currently manages and operates a diverse fleet of 92 vessels, including containerships, bulkers, oil tankers, and other 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 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 having participated 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.