VEAM’s anticipated IPO proves disastrous

September 05, 2016 | 11:36

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In spite of being considered the largest initial public offering (IPO) in 2016 so far, Vietnam Engine and Agricultural Machinery Corporation (VEAM)’s did not fare well on its launch.

The company failed to attract investors, especially foreign investors when it sold 90 per cent of the expected share volume only.

On August 29, VEAM launched its IPO to issue 167 million shares, equalling 13 per cent of its chartered capital. However, only 149.5 million of the shares were sold.

The failure of the IPO was shown through the average price of VEAM’s shares, which stood at VND14,291 ($0.64) per unit, VND1 higher than the initial price, showing that investors did not value the company’s shares much. The auctioned share volume was valued at VND2.13 trillion ($95.7 million) instead of the VND2.38 trillion ($106.6 million) highlighted in the company’s estimations.

Regarding the selection of the strategic investor, as of now, only Vietnam N.A Motor Co., Ltd. (N.A Motor) has expressed interest, indicating a one-sided ending. Adding salt to injury, N.A Motor registered to buy the assigned 36 per cent at the price of VND10.050 ($0.45) per unit, much lower than the IPO’s price.

VEAM’s IPO was considered an attractive opportunity because the company produces revenue as well as profit in the trillions of dong. According to the company’s financial report, in 2015, it acquired a net profit of VND3.66 trillion ($163.8 million). In addition, it owns numerous sizeable land plots in Hanoi, Ho Chi Minh City, Haiphong, Dong Nai, and Ba Ria-Vung Tau, among others.

However, in reality, the reason for VEAM’s IPO falling short of expectations is because almost all of its profit came from dividend instead of its major business lines, including manufacturing agricultural machinery and components, which are suffering from stiff competition from Chinese products. Notably, 92.6 per cent of the company’s 2015 profits came as dividend from Honda Vietnam, Toyota Vietnam and Ford Vietnam, where VEAM holds stake volumes of 30 per cent, 20 per cent, and 25 per cent, respectively.

Although VEAM can acquire dividend from the above three enterprises in the next 20 years, it has yet to set an increased target in profit from dividend, due to the increasing pressure on the motor and automobile market after Vietnam signed free trade agreements, marking a decrease in import taxes.