Vietnamese groups seeing more promise in US listing

VNG has spent several years attempting to figure out the conundrum of listing on a US stock exchange. Photo: Duc Thanh

Loship, BAce Capital’s one-hour delivery e-commerce startup, seems assertive in its overseas listing plan on the New York Stock Exchange (NYSE) by 2024.

An initial public offering (IPO) is one of the key milestones Loship targets to fulfil in the next three years, after reaching profitability. A successful listing could fuel the company’s future growth, create an exit option for investors, and help employees to realise preferential shares under the Employee Stock Ownership Plan.

“As an innovative startup, we prefer traditional IPO via a direct listing. However, US investors typically do not know much about Southeast Asian companies and it creates huge challenges for companies in the region, including Vietnam, to attract capital from retail and institutional investors on the exchange. Therefore, a special purpose acquisition company (SPAC) route seems a more realistic option for us. This will help us to go to the US capital market faster and more smoothly,” Nguyen Hoang Trung, co-founder cum CEO of Loship, told VIR.

Trung noted that the IPO journey is complicated and troublesome, given that no Vietnamese company has ever achieved one abroad. “Funding rounds shouldn’t be the sole goal of startups - we need to aim at exit strategies to further increase our value. We must stay optimistic on the journey towards that goal, no matter how tough it may be. That’s what helps us attract potential investors and talents who will accompany us on the journey,” Trung added.

Earlier this month, Vietnamese tech powerhouse VNG Corporation was reported to be considering an offshore listing in the US via the SPAC route in order to delve into the massive influx of foreign capital, and the transaction may be worth $2-3 billion.

After a string of failed offers, VNG is one of numerous Southeast Asian unicorns to have joined the procession of regional rivals seeking US listings through SPACs, following in the footsteps of Singapore’s PropertyGuru, SEA Group, and Bukapapak, among others.

Golden Gate Ventures meanwhile expects mergers and acquisitions in Southeast Asia will pick up. It is estimated that a total of 468 startup exits will happen between 2020 and 2022, due to more late-stage private equity investors, including secondary buyers, SPACs, and a welcoming public market.

Routes to success

Other international investors are very bullish in Southeast Asia as one of the hottest global markets worldwide, particularly in the e-commerce sector.

Herston Elton Powers, managing partner of 1982 Ventures, said Vietnam has been under-covered from a tech and venture capital perspective compared to Indonesia and Singapore for many years.

“VNG is arguably one of the only real super apps in Southeast Asia, but has been overlooked by investors. This is starting to change for early-stage startups in Vietnam as more investors are starting to see the massive opportunity in Vietnam,” Powers said. “As a seed-stage investor, 1982 Ventures is benefiting from the spotlight that VNG is putting on the market for the next generation of Vietnamese unicorns.”

Elsewhere local e-commerce platform Tiki, a loss-making business, also intends to raise more offshore cash through SPACs in Singapore, while VinFast and Bamboo Airways are opting for the SPAC route on the NYSE.

Given Vietnamese companies’ relatively unfamiliar reputation in foreign markets, especially in the US, some might be hesitant in the potential of overseas listing.

However, Powers of 1982 Ventures believed that the US market is always ready for fast-growing and strong-willed companies. Singapore’s SEA Group – the parent company of Shopee and Garena – has demonstrated that a tech company from Southeast Asia can be extremely successful in the US capital markets.

“With all options on the table, Southeast Asian tech companies have multiple pathways to tap the public markets. The entire ecosystem will benefit as we see more conventional local and overseas listings, dual listings and SPACs,” he told VIR.

Burst bubbles

Analysts like Powers noted that fundraising in the US is not a walk in the park and Vietnamese companies, or any Southeast Asian ones, cannot just “wing it” by capital raising and then going hunting, as the commercial burn for fees and sponsor compensation will be significant.

Among VNG, Tiki, and Loship, VNG has the strongest chance of succeeding to raise funds in an overseas market, with high potential in digital content, e-commerce, online gaming, and cloud platforms, according to Kent Wong, partner and head of Banking and Capital Markets at VCI Legal. These different tech channels allow VNG to not be limited by a geographical area or reliant on local infrastructure.

However, Wong believed VNG will be arriving late to the party, saying the SPAC market bubble has burst and VNG’s crown jewel, Zalo, will find it hard to gain traction due to other international messenger apps already dominating the market.

“I would prefer the conventional IPO route because a reverse merger SPAC will undergo stringent scrutiny anyway. It would be better to ensure the fundamentals are in place, especially since VNG is not a startup and has a notable history since 2004, which could mean an even more favourable and larger valuation,” Wong said.

Aside from market position in Southeast Asia, groups like VNG “need to consider their valuation in the context of the US capital market and therefore they will be accountable to investors for VNG returns performance in that market, not just making a comparison to market position among ASEAN peers,” he added.

Furthermore, some question the feasibility of VNG’s $2-3 billion in valuation, noting the figure is rather modest compared to the group’s dominant market status in Vietnam, and compared to other peers such as FPT or Indonesia’s Bukalapak $6.5 billion deal of late.

Others have claimed that VNG’s valuation of roughly $2-3 billion does not “live up to the expectations” of the company’s market-leading position.

“I think VNG’s Investment Banking team is facing a serious problem - that’s why they could not persuade international investors that VNG is worth much more than the $2-3 billion range. Even Bukalapak, which is allegedly in the mid-tier rank of e-commerce players in Indonesia, could secure a $6.5 billion valuation,” an industry insider told VIR. “A few years ago, Tencent had already valued VNG at more than $2 billion, so where did all of VNG’s brightest minds go if the valuation today remains the same?”

If VNG does not want to undersell themselves at a $3 billion valuation through a SPAC, Wong of VCI Legal suggested they should look at the traditional IPO route and by doing so cut out unnecessary fees, conflicts, and sponsor compensation inherent in going through the SPAC route.

“Foreign investors, particularly renowned international fund managers, want to see an expansive upside to their investment, not status quo dominance within a single distant market in Vietnam,” he said.

Powers of 1982 Ventures added, “Every company needs to consider what it means to be a public company in the US and the preparation needed to execute a successful listing. The listing is critical and you only get one chance to get it right. Many companies fail to realise that the listing is only the start of the journey. The global capital markets are demanding, but with the right strategy can be a competitive edge, including access to deeper pools of capital and liquidity.”