Take off problems are stalling flagship carrier’s IPO plan

The list of possible equitisation advisers put forward by Vietnam Airlines has ruffled feathers, as there were several candidates not on the Ministry of Finance’s (MoF) approved list. The airline had also failed to fix costs for the service.

According to a Ministry of Transport (MoT) document sent late last month to Prime Minister Nguyen Tan Dung, the equitisation was facing “some issues” in selecting a foreign adviser, a necessary first step to push the equitisation forward.

In 2008, the government agreed to equitise Vietnam Airlines, the largest airline in Vietnam, and sell 20 per cent of its stake to strategic foreign partners.

But issues including difficulty in fixing price of consultancy bidding package and problems with the listed candidates, would continue holding back the carrier’s initial public offering (IPO) plan unless the prime minister stepped in, said MoT.

“The airline cannot collect enough information for evaluating the bidding package for advising its IPO in accordance with Decree 85/2009/ND-CP,” the MoT reported.

Under the decree which guides the Bidding Law, the bidding package price for consultancy services carried out for the formulation of pre-feasibility study reports and feasibility study reports is determined on the basis of the average price of related projects already implemented in the sector over a given period.

But Vietnam Airlines has no information on an average price because there are no precedents for equitising a large state-owned airline in the country.

The airline itself proposed nearly $3.9 million. But this needs to be approved by the prime minister.

Vietnam Airlines’ equitisation plan, first announced in 2008, is still in its infancy.

So far, nine foreign advisers have registered to join the bidding for selection as advisers to the carrier. They are Merrill Lynch, Citigroup, UBS, JP Morgan, ABN-AMRO, Morgan Stanley, Calyon & Credit Agricole Group, Rothschild and Goldman Sachs. However, none of the advisers are on the MoF list of advisers approved to provide evaluation and consultancy services in Vietnam.

All advisers that wish to take part in the bidding have to be approved by the prime minister. Because of the slow pace of the equitisation, Vietnam Airlines last year changed into a one member limited-liability company, as per the requirement of the government. 

Early this year, Vietnam Airlines chief executive officer Pham Ngoc Minh announced that the airline was trying to implement an IPO by 2012. The firm is also expanding to become the second largest airline in South East Asia by 2015, after Singapore Airlines.

The airline’s IPO is a chance for foreign investors to take part in growing aviation market. Vietnam Airlines reported its total turnover last year reached $1.75 billion, an increase of 47.3 per cent year-on-year.