Dilemma: IPOs unable to find customers

Monday, April 28, 2008
IPOs have become less and less attractive to investors. Experts believe that the main reason behind the problem is overvalued shares.
The quiet IPOs
In the first quarter of 2008, only 10 IPOs were organised at the HCM City Stock Exchange (HOSE), 1/3 of which failed as there were few participants.
The situation was even worse at the Hanoi Securities Trading Centre (HASTC), where many IPOs were cancelled as there was no interested investor. The IPO of the big company Habeco saw investors register to buy only 13% of total shares offered. Habeco’s and Vietcombank’s share prices have been decreasing sharply on the OTC market since their IPOs, which is another reason why investors are less interested.
It is very likely that “quiet” will appropriately refer to the IPOs of big names slated for 2008. A lot of big corporations are planning to make IPOs in 2008, including the Bank for Investment and Development of Vietnam (BIDV), Vietinbank, MobiFone, and Mekong Housing Bank.
A lot of reasons have been cited to explain the failure of IPOs, among which the biggest reason is the fall of the stock market, which has been making investors turn their backs on shares. Some experts have suggested delaying IPOs in order to reduce supply in order to rescue share prices from continuously sliding.
However, the suggestion has not received the support of many other experts, who believe that the delay of IPOs would slow down the equitisation process, which should be sped up instead.
Dr Le Tham Duong, Head of the Business Administration Faculty under the HCM City Banking University, said that the main problem of the failed IPOs was unsuitable prices.
“Investors would certainly be interested if the share issuer offers suitable prices,” Duong said, adding that enterprises should provide transparent information to the public in order to gain the confidence of investors in enterprises.
Changing the way of making IPOs?
Currently, enterprises, especially big ones, always make IPO first, and then negotiate with partners to select strategic shareholders. The basis for negotiations is the average IPO price, and the sale stake prices applied to strategic shareholders must not be lower than the average IPO price.
Experts say that the high starting prices of Sabeco, Vietcombank and Habeco made the P/E of the companies’ shares much higher than the average market’s P/E right at the moment of making IPO. As a result, none of the three companies have finished selecting strategic partners.
It is obvious that the state, as the owner of enterprises and the seller of stakes, aims to optimise the profit gained from IPOs. However, EuroCapital, a securities company, thinks that the government should declare a main purpose of IPOs: renovate equitised enterprises’ corporate skills or try to get as much money as possible from selling stakes.
The government should select strategic investors first and set specific requirements on the minimum time of holding stakes (in order to avoid speculation) and set requirements on partners in renovating enterprises. The IPO should be made later, and be carried out at s suitable moment in order to avoid possible shocks and supply & demand imbalance.
Experts have also advised investors to buy shares of equitising enterprises at this moment, as they can have opportunities to own big enterprises at low prices. (VnMedia)