Extending the time period for IPO auctions could hold businesses back

Tuesday, May 20, 2008
The slow progress in equitising state owned enterprises (SOEs) is attributed to many reasons such as uncoordinated procedures, cumbersome administrative formalities, and bad debts. Many people say that the current situation on the stock market is not favourable for SOE to equitise and issue Initial Public Offerings (IPO).

Order of Preference for IPO

Professor, Dr. Nguyen Dang Nam, Chairman of the Financial Institutes Council said it is necessary to re-consider extending the time period for IPO auctions of prestigious enterprises, especially as they are thirsty for capital.

Mr Nam said it is necessary to conduct the IPO auctions and the equitisation process of prestigious enterprises at the right time. More importantly, when enterprises select strategic investors and accurately evaluate the value of shares, investors will get involved. Moreover, enterprises should provide investors with clear information about their activities and have trust in their plans after the equitisation process.

Mr Dao Van Hung, Chairman of the Management Board of the Electricity of Vietnam (EVN) said the group wants to have IPO auctions to increase its capital for production activities, as it is difficult for it to borrow capital from banks with the high interest rates.

Currently, EVN is investing in building 25 power plants with a total funding of VND150,000 billion. The electricity sector has proposed the continued implementation of the equitisation process of power companies, as this will entice many investors to get more involved in the sector and improve transparency and the management efficiency.

To meet the demands for IPO auctions by some enterprises, economic expert Le Dang Doanh also said that some national major power projects should be considered as top priorities and brought on to the trading floor of the securities market as the electricity sector is now in need of massive amounts of capital to overcome the shortage of power.

According to Mr Nam, businesses should set a time for launching their IPO auctions in line with their own circumstances. The Government has made the right decision to allow business to extend the time until launching IPO auctions. However, those enterprises who are effective in business should not be allowed to postpone their IPO issuance as it could slow down the equitisation process.

Giving the right of self-determination to businesses

The slowdown of the equitisation process is partially attributed to inflation and recent fluctuations in the stock market. Maybe, the equitisation process should wait until the stock market picks up again.

Nguyen Duc Tang, deputy head of the Business Financial Department under the Ministry of Finance, said that in some people’s opinion, businesses’ IPO must bring in a higher value than their initial denominations. This view has distorted the reality of IPO issuance and the equitisation process. Businesses should launch IPO auctions based on their real assets and provide transparent information in order to ensure the legitimate rights of shareholders and attract more investors, he added.

According to economists, in the current context of the falling stock market, preventing new business from issuing IPO will have a negative impact on the market. Enterprises should be encouraged to participate in the market to create a balance between supply and demand. If investors do not want to purchase shares of listed companies and new businesses are not allowed to launch IPO auctions, the stock market will be less attractive.

Le Dang Doanh affirmed that the stock market must follow market principles, including supply-demand and competition. Enterprises should have the right to launch their IPO auctions in line with their business strategies. They have to take responsibility for their listed shares and monitor the supply and demand fluctuations on the market.

Mr Doanh said that the Government hopes to sell shares of State-owned enterprises at the highest price. It is unnecessary for the Government to use administrative mechanisms to intervene in the market’s supply and demand laws because this type of intervention will not benefit enterprises, he stressed.

Economists have said that if the time for IPO issuance is extended to save the stock market, this administrative measure should only be used for a short period of time. As scheduled, IPO issuance and the equitisation process should be completed by 20 big corporations and nearly 400 businesses by 2010. The most important issue is to accurately appraise the assets that a business has. (VOV)