Finding strategic shareholders after IPO challenges businesses

Statistics from the Steering Committee for Enterprise Innovation showed that the government approved privatization plans of 19 SOEs with the total value of VND41 trillion (US$1.74 billion) in the first half of this year. After the nod, 16 SOEs conducted initial public offerings (IPOs), earning more than VND22 trillion (nearly (US$1 billion).
However, many of them failed to sell shares to strategic shareholders according to approved plans. According to the legal regulations, the share sales must be made within four months of the IPO. Vietnam Oil Corporation (PV Oil) was the latest case in the strategic sale failure. With the government’s recent refusal to extend the deadline to look for strategic investors, doors closed for PV Oil to sell strategic stakes to four foreign and domestic investors SK Group (South Korea), Idemitsu (Japan), HDBank and Sovico Holdings, who had previously been announced to meet the criteria to join the auction to become PV Oil’s strategic investor in May.
According to the initial plan, PV Oil would organize a public auction to select the strategic investor paying the highest price. The government was expected to acquire VND9 trillion ($397.4 million) from the deal in case the auction started at the same price as the IPO (VND13,400).
According to Decision No.1979/QD-TTg by the prime minister, PV Oil had to complete the sale of shares to strategic investors within three months after its privatization plan was approved. However, Cao Hoai Duong, general director of PV Oil, stated that this time the company issued stricter criteria for strategic investors, thus, it would be necessary to extend the deadline so that interested investors have time to negotiate. Thus, PV Oil requested the Ministry of Industry and Trade and the prime minister to extend the deadline to early July, which was promptly refused.
The same happened to Binh Son Refining and Petrochemical (BSR). Despite a successful IPO in the first quarter of this year, which helped raise US$245 million from selling a 7.79 percent stake in the US$3 billion Dung Quat oil refinery, BSR has so far still failed to find a strategic investor, who can buy a further 49 percent stake of BSR.
Regulations hinder strategic sales
According to PV Oil’s CEO Cao Hoai Duong, four months were too short for strategic investors to decide to invest in such a big stake while investors were also concerned about regulations on prohibiting investors to sell their stake before ten years.
Notably, experts said that the current regulation on foreign shareholding cap of 49 percent remains one of main reasons making the strategic sales less attractive.
Tony Foster, managing partner of law firm Freshfields Vietnam, said foreign investors stand ready to spend billions of dollars on stakes in hundreds of Vietnamese SOEs, but they do not know how to do it.
“It is because everything remains unclear. Foreign investors are facing many difficulties in participating in SOEs’ privatization. The biggest obstacles are prices, the lack of transparency in the processes, the small percentages for sale, and unclear assets and rights,” Foster said.
Foster suggested that the government remove the foreign shareholding cap of 49 percent to attract more potential investors that may be interested in the controlling rights of certain companies.
Some National Assembly members also agreed with the proposal. Deputy Tran Van Minh representing the northern province of Quang Ninh stressed that with low stake rates being on offer, SOEs will not be able to attract private investors, especially strategic ones.
“If investors have a larger ownership rate, they can further pursue the reform of SOEs. It is extremely important to increase the ownership rate of strategic investors, who can bring in healthy financial sources and high technologies, as well as access to strong markets. This will ultimately benefit the state budget,” Minh said.