Vietnam banks face challenges in private offering to foreign investors

State-owned banks, such as Vietcombank and BIDV, have so far this year continuously failed to sell stakes to foreign investors. It has caused them headache as they are under great pressure to hike capital to satisfy Basel II standards.
Under SBV’s Circular, banks must maintain a capital adequacy ratio (CAR) of at least 8 percent as per Basel II norms, starting in 2020. With the new regulation, the CAR of the banks will fail to reach the minimum level set by the SBV if they fail to increase capital. Earlier this year, Vietcombank planned to sell more than 350 million shares, or a 10 percent stake, to foreign investors in the first half of 2018 to increase capital.
At that time, the bank announced that the plan for the private equity placement had been approved by the relevant authorities and Singapore sovereign fund GIC was among the potential buyers. Japan’s Mizuho Bank, the biggest foreign investor in Vietcombank with a 15 percent stake, would be also allowed to buy additional shares to maintain its ownership ratio at the bank. However, the plan has so far failed.
BIDV has so far also failed to find strategic investors to increase capital. BIDV in 2015 announced plans to sell a 15 percent stake to a strategic foreign partner and another 10 percent to an overseas financial investor.
It has so far taken BIDV more than three years to find a strategic partner, but no one paid as high as the bank’s market listed price of over VND30,000 per share.
Price policy shows unattractive
According to Vietcombank’s Chairman Nghiem Xuan Thanh, the divestment of the bank is currently facing difficulties due to the price policy and complicated regulations.
Besides being large and prestigious institutions from developed countries, foreign qualified buyers are also required to hold the stake for at least one year, Thanh said, adding it was hindering investors as the stock prices in the market constantly fluctuate.
Under the current legal regulations, the sales of the banks’ stake must be also in large lots and the selling price must not be lower than the market one, Thanh said.
Vietcombank had so far still failed to find partners from developed economies who agree to pay the bank’s shares at the market listed price – or nearly four times of the bank’s book value, Thanh said, adding that market listed prices of leading banks’ shares in the region, not only in Southeast Asia but also in Asia, only double that of the banks’ book value.
In the latest report on Vietcombank’s stock, Viet Dragon Securities Company (VDSC) forecast that it will be very hard for Vietcombank to succeed in its private placement in 2018.
According to the VDSC’s report, Vietcombank hopes to complete the issuance plan in the third quarter of this year. However, at an average price of VND60,000 per share, Vietcombank’s share is trading at a P/B of around 3.6x, which is not attractive compared to that of other banks with the good asset quality. In addition, Vietcombank’s stock buyers will be subject to a one-year transfer restriction.
“These two factors make the Vietcombank’s private placement not so attractive to financial investors. Therefore, VDSC believes that the probability that Vietcombank will be able to issue all 10 percent of state as planned this year is very low,” VDSC’s analysts said.