Market shatters state equitisation dream

VNSteel, among the biggest steel manufacturers, said that its initial public offering (IPO) plan could not take place this month as scheduled. “The stock market situation is now too bad, we can not ensure that the IPO plan will finish in May,” said Mai Van Tinh, chairman of VNSteel.

Meanwhile, last month, the steel giant had to get approval from the prime minister to equitise the firm and the plan was scheduled to take place this month.

VNSteel’s move comes as the state-owned telecommunication giant MobiFone is unlikely to go public soon as it expected. Although early this year the Minister of Information and Communication asserted that the equitisation for the firm had to be completed within this year, after it started the plan in 2007 with no clear route map available.

Besides VNSteel and MobiFone, a handful of big state enterprises, including Vietnam Airline and BIDV, are delaying their equitisation although they planned to complete them this year, usually with the reason that “current stock market is unfavourable.”

By May 12, the benchmark VN-Index of the Ho Chi Minh Stock Exchange had lost 9.4 per cent as compared within three months. Liquidity on the bourse is drying out with the historically low trading volumes, which hit approximately 18 million to 20 million shares each session.

That situation much challenges the local enterprises’ issuing shares as investors almost do not want to cash in stocks anymore. Meanwhile, the government is trying prompt the equitisation process, reducing the state enterprises number to 700 from 800, down from some 1,500 last year.

The overspending in the national budget, of 6.2 per cent GDP in 2010 and estimated 5.5 per cent in 2011, along with high sovereign debt are believed as main reasons for the country to stepping up selling stake in numerous state-owned enterprises.

Meanwhile, even the legal document related to the equitisation process is being long delayed. The draft Circular on restructuring state enterprises, which upgrading the current Circular 109, was expected to come into effort lately last year but had not been completed to date.

“It [the government] needs to get new thoughts on enterprises’ equitisation,” said Quach Duc Phap, chairman for Vietnam Association of Financial Investors (VAFI). “Its ambition to complete equitising several big enterprises within a short time is unpractical, even when the market condition is good.”

“It should target a modest number of enterprise to IPO,” he added “the problem is not only carrying out the plan steadily to keep the progress going, but also strengthening the market’s confidence.”