Vietnam Airlines Sees Approval for IPO Outline in June

Apr 30, 2014 9:27 am ET

(Corrects attribution of valuation in second paragraph of story published April 29.)

April 29 (Bloomberg) -- Vietnam Airlines Corp., the national carrier, said it expects to get approval in June for the number of shares to be sold at an initial public offering as the government speeds share sales to win overseas investors.

The airline will offer a “suitable” stake based on market demand, Chief Executive Officer Pham Ngoc Minh said in an e- mailed response to questions. The carrier has been valued at $2.74 billion, according to the Saigon Times newspaper. The reported figure was included in a report Vietnam Airlines submitted to Prime Minister Nguyen Tan Dung and the transport ministry, he said. Approval for the valuation and the stake to be offered in the IPO, planned for September, will be given by Dung, he said.

Vietnam is speeding share offerings, with a target to sell stakes in more than 400 state-run companies by the end of next year, as part of efforts to restructure the economy and lure more overseas investors. Foreign investors have shown little interest so far this year in Vietnam’s two dozen IPOs of state companies, which did not meet capital raising goals. Vietnam Airlines is one of the biggest state-owned companies being considered for stake sales in the country.

“Foreign investors are very interested in buying a stake in Vietnam Airlines as it is among a few large size SOEs that operate profitably,” said Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, Vietnam’s biggest fund manager that oversees about $1.6 billion of assets. “It is considered a crown jewel of state companies.”

IPO Delays

The government raised 1.36 trillion dong ($64.5 million) from 24 IPOs through April 23, about 35 percent of the 3.9 trillion-dong it targeted for the offerings, according to data from the nation’s stock exchanges in Ho Chi Minh City and Hanoi. Foreign investors participated in only one of initial offerings this year, according to data from the exchanges.

Besides the national carrier, investors have also been awaiting big companies such as Vietnam National Textile & Garment Corp. and Vietnam Mobile Telecom Services Co., known as Mobifone, to go public, said Pham.

The government has been trying to conduct an IPO of the state-owned Vietnam Airlines since at least 2010 amid intensifying domestic competition.

VietJet Aviation Joint Stock Co., a privately owned airline, in February said it is considering sale and leaseback of aircraft and a share sale to help pay for the 100 Airbus Group NV planes it has ordered.

Vietnam Airlines will also seek a strategic investor in the fourth quarter, Minh said. The carrier expects to carry 15.8 million passengers this year, compared with 14.7 million in 2013, he said. Revenue is estimated to have risen 4.5 percent to 14.6 trillion dong in the three months ended March, he said.

Market Gains

Vietnam Airlines is counting on the gains in the country’s key index to attract investors. The benchmark VN Index of Vietnamese stocks has risen 15 percent this year, making it the best performer in Southeast Asian markets. The measure rose 0.9 percent today.

“Investors will always study and have strategic vision when considering to invest in a big-scale SOEs like Vietnam Airlines,” Minh said. The performance of the stock market will also have a “good impact” and contribute to the success of the IPO, he said.

Vietnam Airlines said in September that it worked with advisers including Morgan Stanley and Citigroup Inc. to evaluate its assets for equitization.

The carrier completed the corporate evaluation process in February and is awaiting the government’s approval and expects to announce the value early next month, Minh said.

“Vietnam Airlines can be a successful IPO,” said VinaCapital’s Pham. “But the government should reduce its stake to below 50 percent so that private investors feel they have the power to bring in new management and make fundamental improvements in its operations.”

--With assistance from Suresh Seshadri in Bangalore.