Given the success of its initial public offering (IPO) at the end of December 2011, executives at the Bank for Investment and Development of Vietnam (BIDV), one of the largest banks in Vietnam, could not have imagined that seeking a strategic investor would prove to be such a difficult task.

“We are yet to find a foreign strategic investor,” said Mr. Tran Phuong, Senior Executive Vice President. “We have been looking for four years and will continue to look.”

BIDV has sold 7 per cent of its shares to individuals, union organizations, and staff to date. The government planned to sell 15 per cent to an overseas strategic investor to bolster corporate management, financial ability, and competitiveness.

This turned out to be no easy task, with the bank still struggling to attract an organization interested in becoming a strategic investor.

Mr. Pham Viet Muon, who retired several months ago from his position as Vice President of the National Steering Committee for Enterprise Reform and Development, said that finding overseas strategic investors has been a headache for the executives at many State-owned enterprises (SOEs).

Vinatex, the national textile and garment group, also failed to find a strategic investor even though it owns a number of garment and textile factories nationwide and has a bright future thanks to the TPP. Instead, it sold 24 per cent of its shares to local partners not involved in the industry, including VID Group and VinGroup.

The national flag carrier Vietnam Airlines finds itself in a similar predicament, after failing to find a foreign strategic investor to take on the 20 per cent available.

Dribs and drabs

Foreign investors regularly express interest in acquiring shares in SOEs, especially large ones such as BIDV, Vinatex, and Vietnam Airlines. So what explains their reluctance?

Mr. Kevin Snowball, Chief Executive Officer at PXP Vietnam Asset Management, said the market has not actually opened up as widely as the government claims. All the fundamental economic indicators look good at this point in time, meaning there are opportunities for foreign investors to invest in the country. 

Mr. Snowball, however, said the level of foreign ownership in SOEs is too low to attract foreign investors.

The small stakes on offer means that foreign investors can’t be involved in the management of the companies in which they invest. This makes for a risky investment.

Mr. Takashi Sakakibara, Special Adviser to the Chief Representative of the Japan International Cooperation Agency (JICA), has figures that show that of the 247 SOEs that underwent equitization in 2011-2014, only 30 sold more than 5 per cent of shares to foreign investors. And, post-equitization, State ownership still accounted for 90 per cent.

Mr. Muon explained that the government wants to implement equitization gradually. But the longer the process takes the greater the disenchantment among foreign investors.

“The fact that the State still holds shares in post-equitized enterprises not only creates difficulty in changing governance but also sends a negative message that it is impossible for investors to have an important voice and be involved in decision making on significant issues for the enterprise,” Mr. Takashi said.

In June the government permitted foreign investors to own up to 100 per cent of certain publicly-listed companies.

The reaction from foreign investors was immediate and positive. But nearly half a year later the policy is still to have guidelines from government agencies.

Investors are still waiting for a list from the Ministry of Planning and Investment of those companies where 100 per cent ownership is permitted.

“We have been waiting since 2006 for the government to lift limits on foreign ownership, but we still need to know the extent of the relaxation,” said Mr. Snowball.

The government recently announced the sale of interests worth some $3 billion in ten large SOEs, including Vinamilk and FPT.

But the timeline is unclear. Mr. Andy Ho, Chief Investment Officer at VinaCapital, said the equitization process has failed to meet the expectations of foreign investors, in terms of both quality and quantity.

Lack of transparency 

Apart from the low ownership issue, foreign investors seeking to raise their holding in Vietnamese companies also have difficulties in properly analyzing financial reports, which are often delayed for up to two years and sometimes fall short of international accounting standards.

Mr. Snowball said that due to low transparency in information provision, investors face a great deal of problems securing financial details when considering opportunities prior to and during the equitization process.

Enterprise valuations, the offering price at IPO, and the offering price to strategic investors are not fully subject to market rules or buyer demand but based instead on the opinion of the vendor.

Given the floor price determined by the vendor, the buyer has no opportunity to bargain. It’s perhaps no surprise that enterprises are now finding good strategic shareholders hard to come by.