Click here to listen to audio
I’m joined today by Linh Bui and Bill Magennis both Partners in the Vietnam office at Allens. Linh and Bill thanks for joining me.
Bill we’ve seen recent media reports on the equitisation process that is undergoing in Vietnam at the moment, can you explain to us what equitisation means in the Vietnam context?
Yes equitisation is a word specially coined in Vietnam for what most of the world would call privatisation, and it involves dividing the capital of state enterprises into shares and then selling some but not all of those shares to the private sector. So what equitisation really means is just to create shares in a company some of which will be sold to the private sector.
And Linh if I bring you in what assets will have particular interest to foreign investors and why?
Sure, so the Vietnamese Government has set a goal to equitise more than 300 state owned enterprises from now till the end of 2015 and among those companies there are larger state owned enterprises with leading market position that we think will have particular interest to the foreign players. And these company’s operate in a range of sectors including telecommunication retail, power and oil and gas. And for example one of the major upcoming equitisation in 2015 will be of MobiFone which operates in the telecommunication space and MobiFone is the second largest mobile operator in Vietnam and currently this market is dominated by three state owned companies, being Vietel, VNPT and MobiFone. And because there is no plan to equitise the other two operators we believe that MobiFone equitisation will be quite a unique opportunity for foreign players to come into the Vietnam mobile market and we understand that so far a number of foreign telecom firms have already expressed their strong interest in acquiring shares in MobiFone.
And Bill how can foreign investors participate in this process?
Well there’s two ways, the first is to join with the public in general to apply for shares in the equitisation process which is an auction process with a set price as a floor, but that’s not a way to yield a large parcel because only a very small amount of the company is sold this way. The main way is as a so called strategic investor which one becomes by way of direct negotiation with the company as part of the equitisation process. So usually no auction is involved but you’ve got to agree to stay around in the company for five years and bring some kind of long term benefit to the company by way of management skill, know-how or intellectual property so that it can develop.
And Linh what kinds of issues do foreign investors face?
Yeah there are a couple of major issues that foreign investors may have to face when investing through the accreditation process. And I think one of the key and major issues that are only a minority space, get sold to the strategic investor and we’re talking about from 15 to 20% here and this of course doesn’t give the foreign investor the real management control in the target company and also the fact that the state in a lot of cases will change a significant controlling amount of equity in the company will put off a lot of investors from investing through the liquidation process because they don’t want to invest cash and technology in the company that will not be subject to their control. And another major issue is valuation, this because Vietnamese law provides for a very detailed rules on how valuation should be done and it can only be done by a registered Vietnamese valuer, so often the valuation yields a very different result from the international valuations and this of course leads to the different expectations in some pricing later on down the road.
Yeah absolutely. Well Bill just finally what are the tips for – what are your tips for foreign investors to be successful in this process?
I think I’ve got three points I would make, the first one is it’s essential to identify a target that has got a management team that is genuinely interested in change. Some companies may just be going through the process without that real desire to change. Once that’s identified I think it’s important to get into the equitisation process early, contact the company, form a view as to issues in relation to valuation and put forward your opinions on that valuation process because as Linh said that will become critical because it sets the floor price which in turn influences the sale price for those investing directly as a strategic investor. Finally know who you are dealing with I think it’s necessary to identify the real decision makers in the process both inside the company and at the controlling government ministry, this will enable you to make sure you’ve got correct information and aren’t being led astray by people who talk but have no power.
Well some good tips for foreign investors there. Bill and Linh thank you so much for joining me.
Thank you our pleasure.