Vietcombank Shares: Which Scenario?

Saturday, May 17, 2008
On April 26, Vietcombank (VCB) organised its first general shareholder meeting. Attending shareholders showed their dissatisfaction, especially those bearing in mind that their trust was betrayed, as their rights and interests were not protected by any governing agency. So, what is the scenario for Vietcombank share price when it is listed on the stock market?
Undeniably, VCB shares will have a certain impact on the Vietnamese stock market. VCB shares are still the blue-chip on the market.
Investors were very keen on the initial public offering of Vietcombank although they seemed unsatisfied with the starting price of VND100,000 per share, the highest of starting IPO price of equitised state-owned enterprises. With strong trust on the long-standing VCB trademark, all offering volume was bought at the average winning price of VND107,572 per share. Following the IPO, VCB shares continually dropped. The price of VCB shares on the over-the-counter market was less than VND50,000 per share, which is the driver to pull down other financial equities.

Which price for strategic investors?

According to the privatization plan and business plans in 2008, VCB will pick up strategic partners and list its shares on the stock market. One of the biggest concerns now is the price VCB offers strategic investors. This move is considered to affect not only the VCB share price but also the whole Vietnamese stock market. So, which scenario is the best for VCB share price? Following are several proposals.

First scenario: Picking up strategic partners according to Decree 109

Under Government Decree 109/2007/ND/CP on transformation of wholly state-owned enterprises to a joint stock company dated June 26, 2007, VCB will sell its stake to strategic investors at a price not lower than the average winning price of VND107,572 per share. This price is fair for all investors but strategic investors will not accept this. Simply, strategic investors are institutions and they only operate on the primary market; thus, they will not accept a price applied to small investors on the secondary market. Before the IPO, strategic partners suggested to buy shares at VND40,000-60,000 per share. The price rate was put up when the VN-Index was above 900 points. Thus, they may lower the recommended buying price because the VN-Index has dropped to around 500 points. The selection of new strategic partners will take a long time and the negotiation process will have to start again. Moreover, at present, bank and financial shares are devaluating. Hardly anyone accepts to buy VCB shares at the average winning price plus.

Second scenario: if selling price is lower than IPO average winning price

In case, VCB cannot select strategic foreign partners, it will have to consider lowering selling price.

However, in addition to the violation of Decree 109, this will hurt investors joining the IPO. Investors will lose trust on the privatization process of the government. Thus, the consequences are immeasurable.

Starting price: which rate?

Not only encountering difficulty in selecting offering price for strategic investors, VCB also faces difficulty in determining the starting listing price.

After closing at VND107,572 per share at the IPO, VCB share price nosedived to around VND50,000 on the over-the-counter market. The price of VCB shares dropped by half. So, which rate is suitable for the starting listing price of VCB shares?

First scenario: Equal to average winning price

VCB shares will be listed on the Ho Chi Minh City Stock Exchange (HOSE) at the starting price equal to the average winning price of VND107,000. Certainly, it is forecast to be quickly return to VND50,000-60,000 per share, even lower.

If the VCB shares are listed at the first price of VND107,000 per share, with a chartered capital of VND15,000, the market capitalisation of VCB is VND160,500 billion (US$10 billion). At present, the total market capitalisation on HOSE is around VND230,000 billion. Then, the market cap of VCB will equal to 69.78 per cent of the total market cap on HOSE. What will happen to the Vietnamese stock market if VCB shares continuously drop? VN-Index will fall and investors’ sentiment will be affected.

Second scenario: Around OTC price

If VCB lists shares with the starting price around the OTC price, it will indirectly admit its wrongness in corporate valuation and setting bidding price. This will have negative impacts on upcoming IPOs of other state-owned enterprises.

Clearly, VCB is encountering a big challenge. The lender’s move will certainly impact the stock market in general and VCB in particular. (Viet Nam Business Forum)