Renewing VNG after mistaken banking foray

While VNG’s Zalo is a tremendously popular messaging application, Zalo Bank could not get a decent foothold. Photo: Le Toan

VNG Corporation has recently announced plans to cap a stellar performance this year, with revenue increasing by 20 per cent to reach more than VND6.7 billion ($290 million). Notwithstanding, its profit after tax will likely turn out a negative VND246 billion ($10.7 million).

“VNG has a diversified portfolio of ventures and sound financial position that can help them weather the storm. But the major challenge for them is to find new growth opportunities,” said Ho Quoc Tuan, lecturer at Bristol University and an observer of the financial market.

VNG currently holds a 60 per cent stake in Zion – the parent firm of ZaloPay. However, Zalo Bank – Zalo’s banking service project – failed to obtain a licence for offering online built-in financial products from the State Bank of Vietnam (SBV) and the Ministry of Industry and Trade.

Numerous advertisements praising the convenience of the lending service were sent to Zalo users by Zalo Bank – including enticing phrases like “Get loans at home, spend lavishly” and “Lending rates reduced by 1-2 per cent for new loan applications” – and have raised doubts over the authenticity and legality of the application.

On its website, Zalo Bank positions itself as an intermediary between users and banks or credit organisations. Currently, four credit institutions, Shinhan, Easy Credit, Shinhan Finance, and FE Credit, are co-operating with Zalo Bank.

The lightning-speed expansion of fintech has made local authorities scratch their heads about how to effectively manage risks of financial security, personal data, money laundering, and cyber terrorism.

“VNG seems to lack a ‘wow’ factor to contribute to its phenomenal success in recent years,” Tuan emphasised to VIR. “The firm should explore new ways to gain revenue streams from the Zalo platform. Though the Zalo Bank project is not successful, Zalo is still a good platform for payments and advertising.”

Up to now, the unicorn has witnessed millions of US dollars evaporating since its 24.6 per cent stakes in e-commerce platform Tiki have generated zero profit. The e-commerce player has wiped out a total of VND506 billion ($22 million) VNG had injected in it. On the other hand, Tiki and another e-commerce platform Sendo have finally reached an agreement to join forces to beat overseas e-commerce platforms Lazada and Shopee.

Not a single firm in e-commerce, despite being lauded as a fertile sector in Vietnam, has made any profit here.

Previously, Tiki proposed the state to loosen the initial public offering (IPO) rules, particularly for money-burning e-commerce companies, but it is not eligible for listing on the Vietnamese stock market given that they have been wilfully suffering mounting losses to scale up presence.

Besides traditional markets, VNG is signalling its ambition to increase its footprint in other territories, such as India or Latin America.

“VNG needs to revitalise its portfolio through new investment. Amid the new normal, the company needs to raise more capital to sustain its growth,” noted Tuan.

Meanwhile, unicorn and startup debacles across the world such as those involving WeWork or Uber can also adversely affect Vietnamese firms, as investors would adopt a more cautious approach.

In 2017, VNG and Nasdaq – the United States’ second-largest stock exchange – signed an MoU to explore VNG’s IPO opportunities on the Nasdaq. Both sides were optimistic about the rosy outlook of Vietnam’s first unicorn tapping into US equity market for capital, but official agreement has not been reached yet. In fact, VNG has not even applied for listing on Nasdaq yet, and the stock market has not determined whether VNG meets its requirements.

“Aspiring startups always aim high so it is good to have an ambition to list. However, VNG can start regionally through the Singapore Stock Exchange (SGX) and then get to Nasdaq eventually,” said Tuan.

Nasdaq has launched several programmes to allow high-growth international companies to access US capital markets, and one of them is linked with SGX. The Singaporean exchange is determined to reverse its recent listing drop, so VNG may be able to take advantage.