VietNamNet Bridge – The IPO (initial public offering) of the Aviation Airport Corporation of Vietnam (ACV) will be one of the largest IPOs this year, and is expected to generate a lot of interest.

Last year, the IPO of Vietnam Airlines attracted the attention of investors. This year, another aviation corporation will be the focus –ACV.

ACV along with Vietnam Airlines and the Air Traffic Management Corporation of Vietnam (VATM) are three pillars of the airline industry in Vietnam.

Vietnam Airlines is in charge of air transport with a fleet of over 80 aircraft; VATM provides air traffic control services; and ACV manages a total of 22 civil airports.

The equitization plan of ACV has been submitted to the Prime Minister.

Both ACV and Vietnam Airlines designed the equitisation plans with 75% of chartered capital held by the state and 20% to be sold to strategic investors.

The shares for the auction will account for just over 3% of charter capital.

The large proportion of state ownership is one of the factors that reduce the attractiveness of the IPOs. Half a year since the IPO, Vietnam Airlines has not yet found a strategic shareholder.

Comparison of financial indicators of ACV and Vietnam Airlines:

Due to the nature of operation, turnover of Vietnam Airlines is much bigger than ACV.

Vietnam Airlines now has to share the market with many domestic and foreign airlines.

Meanwhile, ACV holds a monopoly of airport business. The plan of sale or franchise of some airports is being considered.

Turnover of Vietnam Airlines is currently seven times higher than ACV.

In terms of profit, it is always a major matter of Vietnam Airlines. Profit of Vietnam Airlines' parent company is always at a very low level. Consolidated profits are higher but they are still low compared to ACV.

Pretax profits of ACV in the past two years reached VND3 trillion/year. This result partly came from the depreciation of the Japanese yen.

Regarding organization, Vietnam Airlines has dozens of subsidiaries, and associated companies operating in the aviation sector and ancillary services.

Some unit members of Vietnam Airlines have very high business efficiency; for instance, Noibai Cargo has larger profits than the parent company.

Meanwhile, ACV’s structure is simpler. The parent company directly manages 22 airports and some subsidiaries.

ACV has a number of key subsidiaries like Tan Son Nhat International Airport Service JSC (SASCO), Saigon Ground Service Corporation (SAGS), and Saigon Cargo Service JSC (SCSC).

Both ACV and Vietnam Airlines need to mobilize a huge amount of capital to serve investment and development activities.

In 2015, Vietnam Airlines needs about $1 billion to pay for new aircraft.

ACV is mobilizing capital for the Long Thanh airport project which is scheduled with tens of billions of dollars.

To implement these projects, the two firms will need to add a significant amount of equity and loan capital.

The sale of shares to strategic shareholders is an important part in the capital raising plan.

The ratio of debt to equity of ACV is much lower than Vietnam Airlines.

By December 31, 2014, liabilities of ACV parent company were just over 10% of the equity. Meanwhile, by June 30, 2014, the liability of Vietnam Airlines was five times more than its equity.

Vietnam Airlines has operated in the form of a joint stock company with registered capital of VND11,199 billion (excluding the shares to be issued to strategic shareholders), corresponding to a market capitalization of approximately VND25 trillion based on the average auction price.

Meanwhile, with expected charter capital of VND22,431 billion and a starting price of VND11,000 in the upcoming IPO, market capitalization of ACV is at approximately VND25 trillion - 10 times over the after tax profit in 2014.

With similar market capitalization and better business efficiency, it is most likely that the IPO of ACV will attract more investors than that of Vietnam Airlines.

Cafef/TTVN