FIEs struggling to perform on the stock market stage

FIEs struggling to perform on the stock market stage, illustration photo (Source:shutterstock)

Ten years ago, the Ministry of Planning and Investment launched a pilot legal framework allowing foreign-invested enterprises (FIEs) to transfer from limited liability companies into joint-stock shareholding companies. Since then, nine FIEs were converted and went public, including Everpia (EVE), Mirae (KMR), Taicera (TCR), Tung Kuang Industrial (TKU), Taya Vietnam Wire and Cables (TYA), and Royal International (RIC).

In stark contrast to their rosy outlook of public debuts, these FIEs have encountered some choppy waters.

Taya’s share initially was priced at VND34,000 ($1.50) apiece. However, the company has lost its shine after 14 years, tumbling to VND13,400 (6 US cents) apiece.

Taicera, the Taiwan-headquartered ceramic tiles manufacturer, also struggled to reclaim its high after an original stock price of VND35,000 ($1.52) apiece, reporting a tenfold drop. It has now been put under surveillance.

Shares of Tung Kuang Industrial, Mirae, and Royal International also extended a punishing selloff, dragged to their gloomy outlook by mounting investors’ unease.

According to Hoang Thach Lan, head of the Individual Investor Division at Viet Dragon Securities, FIEs such as Wonderfarm and Everpia garnered a batch of investor attention after raising public funds in Vietnam. However, these FIEs got lost in the shuffle when the race began to welcome more domestic names, more massive in market cap and more impressive in earnings.

“Notwithstanding, there is no major outstanding foreign company in the listed FIEs basket. Almost all overseas groups in Vietnam are small and medium in size. Some of them fail to deliver outstanding performance compared with their counterparts,” Lan explained.

For example, Taicera has swung to losses in 10 consecutive quarters since 2017. Though this once-promising overseas business gained a modestly upbeat result last year, Taicera is likely to see earnings suffer further in the coming time as the game gets tougher.

Elsewhere, Tung Kuang seems to be stuck in the mud, with the company paying the price for a well-documented environmental incident involving discharging untreated wastewater in Vietnam back in 2009.

Kang Moon Kyung, director at Mirae Asset Securities also expressed concern over Taicera’s competitive advantages since the FIE “should look for ways to stay ahead of the game, especially facing challenges from other ceramic manufacturers such as Viglacera of Vietnam or Chang Yi of Taiwan.”

Despite being beneficial for fundraising purposes, the trend highlights a gathering threat for many FIEs here, in that competition is being taken to new extremes, dashing their dreams of taking the helm in Vietnam’s market. As preparations for initial public offerings (IPO) kicked into gear, these FIEs hoped to persuade prospective investors they were worth even more, something that has proven easier said than done.

“Overall, there is no difference between FIEs and domestic ones on local bourses, from investment climate or legal framework. Hence, listed FIEs posted sluggish performances because they have yet to efficiently mobilise capital and change company and shareholder structure. As a result, their shares have been gradually neglected by investors with stock prices on steep decline,” Lan said.

This view is also echoed by Truong Thanh Duc, chairman of BASICO Law Firm.

“It’s not all doom and gloom, with all firms being equal when it comes to the IPO game. The major roadblocks deterring financiers from pouring cash into FIEs lie in their own opaque business activities,” Duc told VIR.

Lan from Viet Dragon Securities emphasised that the key question to ponder is whether their board of managers are able to grasp potentials and seek for strategic shareholders to accelerate their growth or not. If not, this could send them into a riskier position.

“High operating expenses, global macro-economic headwinds amid the wide-spreading COVID-19, and intense competition from domestic rivals have added more fuel to the fire. The worst conditions would sort the wheat from the chaff,” Phan Dung Khanh, investment director at Maybank Kim Eng Securities, told VIR.

On the other hand, some raised questions about how movement of funds is being scrutinised if FIEs go public. Duc of BASICO cautioned transfer pricing is, at its root, a relatively common method that multinationals might be involved in when conducting cross-border transactions.

“Thus, it is important that the government has adopted a tax management system in line with international best practices to regulate transfer pricing. For example, FIEs might have to guarantee they would not divest their shares, or foreign investors are being applied with a lock-up period for a certain time,” Duc noted.