At the beginning of this year, the board of directors of Oricombank (OCB) handed out documents to gather feedback from the bank’s shareholders on the stake to be offered to foreign investors, precisely Aozora Bank Ltd., to raise its chartered capital.

A report released earlier showed that by December 9, 2019, Aozora had registered for buying almost 87 million OCB stocks out of the 118 million on offer, accounting for 11% of OCB’s chartered capital (equivalent to 9.91% of the total chartered capital after the issuance). The offer price would not be lower than the book value of each stock of OCB at the end of the quarter closest to the issuance date.

Japan’s Nikkei Asian Review on its January 8, 2020 edition reported that its compatriotic bank Aozora will have bought 15% of OCB’s stake before April this year after the approval of the Vietnamese authorities concerned. The value of the transaction is around 15 billion yen, or some US$139 million. Prior to this deal, BNP Paribas of France was OCB’s strategic partner during 2007-2018 and at a time held up to 20% of OCB’s stake—the ceiling rate a foreign investor is entitled to.

Military Joint Stock Commercial Bank (MBB) last year also built plans to sell 7.5% of its stake to foreign investors via the issuance of 141.5 million new stocks and sale of 47 million treasury stocks.

However, these plans have not been completely carried out. MBB has recently announced it will register for the sale of 23 million treasury stocks not later than March 31, 2020. That move prompts investors to believe that MBB may have sealed a deal with foreign partners to execute its plans. If so, the deal will be finalized in the first months of 2020.

In early last year, Nam A Commercial Joint Stock Bank (NAB) also came up with a plan to increase its chartered capital from VND3.3 trillion to VND5 trillion, assisted by a scheme to sell its stake to foreign investors. That said, by the end of 2019, NAB had been able to raise the capital to only VND3.89 trillion.

On January 6, the State Bank of Vietnam approved phase 2 of NAB’s plan to increase capital, allowing the bank to boost its capital to VND5 trillion. The phase 2 plan includes a separate scheme to offer 50 million NAB stocks, equivalent to 15% of the capital. NAB says it will offer stocks to both domestic and foreign investors, probably asking the central bank for permission to make full use of the 20% ceiling for foreign buyers.

National Citizen Commercial Joint Stock Bank (NCB) was under the spotlight last October when it revealed that two foreign investors from Japan and Singapore would buy its stake in a new issuance to become its foreign investors in the bank’s next capital increase. NCB has worked with the two investors, expecting to conclude the deal this year.

After receiving the decision to put into use Decree 41/2016/TT-NHNN as of June 2016, Vietnam Maritime Commercial Joint Stock Bank (MSB) made known its intention to sell capital to foreign investors. To meet its goal of raising capital for the next phase, MSB is building plans to sell around 20% of capital to international investors, including 10% in the form of treasury stocks, all the treasury stocks it currently has.

The best option?

It can be said that propelled by the 2020 deadline set by the Strategy for Vietnam’s Banking Development toward 2025 with a vision to 2030, local banks are actively seeking strategic partners so that they can sell capital to them opportunely before their official listings. Basically, selling capital to foreign investors before they make the initial public offering is more beneficial.

First, this strategy will help banks gain more advantages in negotiations for stock prices offered to foreign holders as it helps avoid possible impact of market fluctuations on investors’ sentiment. On the contrary, if the sale is carried out after the listing, the selling price may fall short of expectation as the offer price may be partly influenced by market prices and capital, which may fail to faithfully mirror the real value of the enterprise in question.

Take MBB for example, a bank which is now listed at the HCMC Stock Exchange (HOSE). Despite impressive business results in 2019, its stock price has declined by 10% since early November 2019 as a result of the overall bearish market. Undeniably, a falling market price would adversely affect both the selling price of this bank and offers from partners.

Secondly, a good price agreed to by foreign partners would serve as the fundamental premise for setting the official reference price for IPO because, according to common sense, experienced investors’ acceptance of the price would mean that the bank involved deserves it. That also means a high reference price will help the bank reach a high rate of capital surplus and a big increase of share capital.

This argument can be buttressed by the IPO of Techcombank. In 2018, this bank set the reference floor price at VDN128,000 per share, the highest-ever rate of a bank. Such a price helped Techcombank raise its chartered capital three times to VND34.97 trillion in the same year. Explaining the prohibitively high price, Techcombank’s leadership said the bank had been priced at US$6.5 billion, which was in turn based on the fact that 164 million of its common stocks had been successfully sold to international investment funds, in which foreign investors registered for buying stocks worth over US$4 billion, a very high rate compared to the volume of Techcombank stocks on offer.

Thirdly, the sale of stocks prior to listing helps banks retain all the volume of shares they want to offer to foreign strategic investors when many of them wish to possess the maximum rate allowed to them. In line with Decree 01/2014/ND-CP by the Government, the ceiling applicable to a foreign investor is 20% of the chartered capital of a credit institution in Vietnam, and the total rate of ownership by all foreign investors at a local credit institution must not exceed 30%.

In November last year, HOSE introduced its VNFin Lead Index to meet the requirement of investors interested in stock groups whose foreign ownership rates have almost reached ceilings (mostly in the banking and financial industry). However, international institutions still expect the Government to further raise the ceilings applicable to foreign investors.

During a mid-December meeting with Deputy Prime Minister Vuong Dinh Hue, Warburg Pincus Chairman Timothy F. Geithner suggested the Government should lift the ceilings for foreign ownership at commercial banks in Vietnam.

On its part, the Government has included in the drafts of the Revised Investment Law and the Revised Enterprise Law articles on non-voting depositary receipts so as to enable foreign investors to raise their ownership and, at the same time, ensure the control of risks. These two revised laws are scheduled to be passed by lawmakers in May, paving the way for Vietnamese banks to sell their capital to foreign investors this year. VIR

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