The future of Vietnam equity market 

Vietnam Stock Exchange will be seeing its largest IPO with the listing of Vietnamese mall operator Vincom Retail JSC. The initial public offering could raise up to US$680mn. The amount is significantly larger than the recent high profile IPO of VietJet- the Vietnamese low cost airlines. Vietjet raised US$167mn in its IPO early in the year. The VietJet’s IPO was Vietnam’s largest until Vincom Retail. Prior to Vincom’s IPO, Vietnam has hosted US$422 million of IPO this year in 2017, according to data compiled by Bloomberg.

The sizeable IPO was possible due to it’s shorter than usual settlement days. The settlement time for Vincom Retail will be five days- significantly faster than the traditional six to eight weeks settlement time in previous Vietnam IPOs. The long settlement time has prevented many foreign institutional investors in subscribing to IPOs in Vietnam. The company has sped up the process by listing first, and then selling the shares. The shorter settlement time has attracted many institutional investors. Based on the latest news, nine cornerstone investors have already subscribed to 59% of the IPO.

Vietnamese IPOs in the past have struggled to attract foreign demand, due to the long settlement time. The long settlement time forced investor to take unnecessary market risk while waiting for IPO. Vietjet and VPBank’s IPOs this year were successful, but investors have to wait at least two months before they can list. The success of Vietjet’s share price performance post IPO indicates the significant appetite from foreign investors. Vietjet’s share price was up by more than 60% in the first week after IPO. The share price is now trading 80% higher than its IPO price.

                                                                                                                           Source: Bloomberg

Vincom Retail is the largest shopping mall operator Vietnam, with 41 shopping malls in Vietnam, and expected to grow to 200 malls by 2021. Like many domestic orientated companies, the company benefits from the fast growing consumption of Vietnamese middle class, and the benign macro environment. The government expects the economy to grow by 6.7% in 2017, and similar rate in 2018.

The strong economic growth has also triggered a growth in corporate earnings and a rally in the Vietnam equity market. The benchmark Ho Chin Minh Stock Index is up 23% year to date, the highest since 2008. The combined market cap of the Vietnam equity market has more than tripled in the last five years. The equity market is still relatively small at slightly over US$110 bn, half the size of Philippines equity market.

Source: Bloomberg, Dragon Capital

Hence, there’s significant potential for the Vietnam equity market to be much bigger as its economy grow, and both its private and public sector gain access to the equity market. The precedent set by Vincom IPO could potentially speed up listing of more private and public companies. The government is also addressing the foreign ownership limits in 2018, which will help more foreign inflow to the stock market. Further privatization of SOEs will also broaden the stock market and improve liquidity in the market.

For example, the government through the State Capital Investment Corporation (SCIC) has announced to sell 3.33% of the largest listed company Vinamilk on Nov 11. The 3.3% stake is estimated to be worth US$325m. What’s critical is that the condition given to non-resident foreign investor is a lot more relaxed compare to previous placements. Foreign investors are allowed to suspend share transfer or cancel their bids one day before the share auction, if the share prices in the market fluctuate wildly. Foreign investors can also place deposits in both Vietnamese Dong or US dollars in all banks, unlike previously when investors have to place dollar deposits only in Bank for Foreign Trade of Vietnam.

                                                                                                    Source: Dragon Capital

Further liberalization and relaxation in the capital market rules could help accelerate other much delays government divestment and SOE IPOs. SCIC is in the process of divesting government stakes in other SOEs such as Binh Minh Plastics, JSC, Sa Giang Export Corporation, and FPT. Another major divestment is expected in Saigon Brewing (SABECO), a US$7.9bn market cap company. The government own close to 90% of the SABECO and looking to divest further. Dragon Capital also expect at least 11 SOE’s IPOS between now till 2018, with sizeable deals expected for the Binh Son Refining, PV Power and PV Oil in the near term                                                                                             Source: Dragon Capital

The appeal of Vietnam stock market will continue to grow if the government relaxed the listing rules and the foreign ownership rules in Vietnam stock market. Even at current stage, the Vietnam’s stock market already have  higher market turnover/total market cap ratio than some of the emerging markets in Asia like India, and Indonesia. With more SOE listing and divestment, and more private companies listing, the turnover should improve further and attract more foreign inflow. Already, in the first nine months of 2017, the net foreign inflow to Vietnam securities market has grown by 80% YoY to US$1.45bn, according to National Financial Supervision Commission (NFSC). We believe the growth is sustainable as long as the government continues its market reform plan.

Source: Bloomberg, Dragon Capital

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