SCIC urged to improve Vinamilk auction method

Investors expect improvements in Vinamilk's upcoming share sale (Photo: Le Toan)

This October, State Capital Investment Corporation (SCIC) will divest 3.3 per cent of its stake in Vinamilk, the largest Vietnamese dairy firm ruling over more than half of the market. The state investor wants to earn at least VND7 trillion ($308 million) from the withdrawal.

The announcement has set the market abuzz, not only thanks to Vinamilk’s appeal as a fast-growing firm, but also due to lingering concerns about SCIC’s auction style.

Last December, the state investor offered 9 per cent of Vinamilk’s shares and garnered significant interest from investors. However, at the end, only Thai-owned Fraser & Neave (F&N) joined the auction and bought 5.4 per cent of the shares. The rest remained unsold.

According to experts at the time, SCIC made a number of mistakes that led to the poorly arranged offer. First, the auction took place near the Christmas and New Year holidays, which made it difficult for global investors to join.

Second, the offering price was VND144,000 ($6.33), much higher than Vinamilk’s market price at the time. Moreover, advisors in the deal reckoned that they were not given sufficient time to carry out the book-building, which is vital to attract international investors.

As a result, the market expects SCIC to implement changes in the upcoming auction. Nguyen Hong Khanh, research director at Sacombank Securities, told VIR that SCIC should draw lessons from the unsuccessful sale last December.

This includes adjusting the auction style and announcing the deal earlier to give investors enough time for consideration. Important information, such as valuation and offer price, must be provided in detail.

Khanh believed that investors would still clamour to buy Vinamilk’s shares in October, even if the offering price is higher than the market price.

“Vinamilk is one of the most stable stocks in the long term, with positive growth prospects. As a result, I think that high pricing will not deter investors from buying the shares,” he told VIR.

However, the analyst reckoned that major dairy firms may need to rethink their strategies to take over Vinamilk, as SCIC plans to keep its remaining 36 per cent stake at Vinamilk for the time being.

Meanwhile, analyst Dao Nguyen from Viet Capital Securities believed that the October share sale would attract foreign interest if SCIC adopts the book-building method. This strategy has helped various private companies such as Vietjet, Novaland, and VPBank raise foreign capital this year.

“Book-building is typically preferred by foreign investors, because everybody whose bids are matched will buy shares at the same price, instead of different prices as in the auction process. Moreover, investors do not have to deposit 10 per cent of their intended bidding amount upfront,” Dao told VIR.

The book-building method will also allow SCIC to have a good understanding of investors’ demand for the offering, which would help it choose an appropriate selling price and avoid another failed attempt.

However, it should be noted that the legal framework for book-building in Vietnam remains undeveloped, especially when it comes to state-owned enterprises. Auction is still the reigning method for state withdrawal.

Khanh reckoned that to obey the law, SCIC may need to get creative and come up with a combination of offering methods for Vinamilk this time.

For the first half of 2017, Vinamilk reported VND5.8 trillion ($255 million) of net profit, up 18 per cent year-on-year. This good result means that the dairy firm has fulfilled 60 per cent of this year’s target.

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