HANOI (AFP) – After decades of speculation and multiple failed attempts, Vietnam Airlines’ long-awaited IPO is set for take-off Friday, but experts say it is unlikely to boost the communist country’s lacklustre privatisation drive.
The offer of shares in the “crown jewel” of the country’s many state-owned enterprises (SOEs) is a symbolic milestone in a broader government plan to offload stakes in hundreds of companies.
But the state will still retain a controlling 75 per cent stake in the flag carrier, suggesting there is little appetite for real change.
“Officials want to avoid real privatisation,” economist Bui Kien Thanh told AFP. “With the economic system run by state officials, the economy can’t grow effectively.”
Just 3.5 per cent of shares will be offered publicly Friday, a move Vietnam Airlines hopes will raise $51 million in a deal that values the company at $1.5 billion.
A further 20 per cent stake will go to a strategic partner, while the rest is set aside for airline employees and the trade union.
“It’s disappointing from a pricing perspective,” said Kevin Snowball, CEO of PXP Vietnam Asset Management, who said the shares looked expensive relative to current and prospective earnings.
“It’s symptomatic of the state of the whole equitisation process,” he said, using the Vietnamese term for privatisation. “There is a fundamental misunderstanding across the board of what stock markets are for and how they work.”
In Vietnam, an IPO is separate from an actual stock market listing – sometimes by several years — which Snowball said was another major deterrent for investors.
Yet despite the challenges there remains huge investor interest in the country – a recent $1 billion government bond issue was heavily oversubscribed.
Vietnam Airlines is in a relatively strong position domestically, despite new competition from low-cost VietJet Air, with the country of some 90 million a fast-growing aviation market.
But it is expected to face stiff regional competition as it looks to expand long haul routes, and many experts question whether the carrier will be able to find an airline as a strategic partner.
“You see the same names in Asia emerge when an airline is looking to sell a stake to another airline, and very few deals have materialised,” said Brendan Sobie, an analyst at the CAPA Centre for Aviation.
“Most airlines in this region have been losing money and most of the recent IPOs (such as Indonesia’s Garuda) are trading below their initial price,” he added.
Vietnam’s privatisation project is part of a broader drive to attract foreign investment.
The country is increasingly reliant on export-orientated manufacturing, which is leading a gradual acceleration in the economy, in contrast to the debt-laden banking sector and SOEs, which have long acted as a drag.