Foreign firms keen to fill SCIC’s shoes

SCIC’s divestment is seen as big opportunity for foreign firms to enter the domestic market
Photo: Le Toan

On October 13, SCIC announced its intention to divest its entire stake held in 10 companies in various industries. Notable companies affected include dairy giant Vinamilk (VNM), telecommunications firm FPT Telecom, Binh Minh Plastic Company (BMP), Tien Phong Plastic Company (NTP), and Bao Minh Insurance Corporation. If successful, SCIC will reap about $3–4 billion from this sales spree, which is an organic part of the firm’s restructuring process.

Specific details have yet to be revealed, but SCIC noted that it would choose a suitable time to submit the most profitable strategy for the prime minister’s consideration. At the same time, the firm will maintain its stake in nine other companies.

The Vietnamese stock market has reacted positively to the news, with NTP hitting the ceiling of VND53,300 ($2.38) and BMP gaining 4.35 per cent to reach VND120,000 ($5.37). On October 14, trading volume of heavyweights VNM and FPT Corporation have also increased by 700 per cent and 1,000 per cent, respectively. Stoked by the announcement, foreign investors have net bought a total amount of VND48.38 billion ($2.16 million) on the same day.

Although SCIC’s move falls in line with its overall divestment plan, many investors were still taken aback. They noted that the choice of VNM for divestment was especially surprising, since SCIC did not show any divestment intention during the firm’s general meeting in April. With a 45 per cent ownership in VNM, one of the most profitable Vietnamese businesses, SCIC has reaped VND2 trillion ($89.5 million) in cash dividends each year, as well as a 150 per cent bonus on stocks.

“SCIC’s divestment plan displays the government’s strong determination to withdraw from equitised SOEs, including successful ones with high dividends, like VNM. This is a really great step forward, and will definitely attract attention from the overseas investment community,” said Pham Viet Muon, senior consultant at VinaCapital and ex-deputy head of the Government Office.

The divestment news has also become the hottest topic at VinaCapital’s 2015 Investor Conference in Ho Chi Minh City last week. Most participants, who are investors from Europe and Asia, have expressed enthusiasm.

Peter Wehrle, manager of Switzerland-based Investment Group AG, told VIR that he was excited about the divestment plan and speculated that many foreign funds would be strongly motivated to invest in large SOEs in the coming time. Combined with an attractive price-to-earning ratio of 6.5 per cent and a positive macroeconomic situation, Wehrle predicted that Vietnam would be an attractive destination for overseas investment flows.

Meanwhile, VinaCapital chief investment officer Andy Ho was also upbeat about the SCIC divestment plan, but advised caution. He emphasised that after their initial enthusiasm, foreign investors would have to carefully consider SCIC’s price, timing, and strategy to sell the stocks to make their final decision. Moreover, they must clarify whether the firm was allowed to lift the foreign ownership limit, which remains vague after Decree 60 came into force in September.

“To sustain foreign investors’ interest, I think Vietnam should introduce more products on the equity market, as well as listing a greater number of large-scale businesses,” Ho told VIR. “These moves will boost diversification and provide liquidity for foreign investors.”

At the conference, government representatives also dispelled rumours that the SCIC divestment plan was aimed at raising capital to cover for the state’s dwindling budget.

According to officials, the Ministry of Finance will issue a $3 billion raft of government bonds to overseas markets this year, leaving little need to collect funds from SCIC’s divestment.