Why have potential overseas listings of Vietnamese corporations such as Vinamilk and VNG been thwarted in the past, and how can these issues be addressed?
|Nick Ainsworth, chief of marketing at Dragon Capital|
We think there are a few key reasons. Firstly, Vietnamese companies are still small in size. For the domestic market, a $1 billion market cap is already considered as large-cap, but for the international market this is very small. Therefore, the amount of attention for initial public offering (IPO) listings from foreign investors will be limited.
Secondly, due to the small size the cost of listing, raising capital, and maintaining that listing overseas will not be economically viable. If the security fails to meet certain trading volume levels it may be delisted. Furthermore, the names of the companies are unfamiliar. More companies with operations or brand identity outside Vietnam and greater openness of the market or the attainment of emerging market status would also help.
In addition, the equity market in Vietnam is now $250 billion with liquidity above $1 billion daily. International investors who want to invest in Vietnam can now easily participate directly in Vietnam's stock market, rather than looking into a Vietnamese company listed on a foreign stock exchange. It then makes more sense for Vietnamese companies to focus on listing and raising capital domestically.
Finally, a foreign listing creates a mismatch in foreign exchange as the company's assets are denominated in VND and the security in another currency. As the VND is not openly traded, the opportunity to hedge foreign exchange risks is not available.
The vast difference between Vietnamese and global legal frameworks could pose challenges for overseas listings. What should Vietnamese regulators do to encourage dual listings?
Currently, Vietnam does not allow a loss-making company to list. Therefore, new and disruptive technology companies such as VinFast have to find listing opportunities overseas where possible, and on a major exchange.
Regarding dual listings, companies such as Vinamilk explored the idea 15 years ago and received listing approval from the Singapore Stock Exchange, but then the company decided not to list due to adverse market conditions. The legal framework is there for dual listings. However, it is not yet economically viable for Vietnamese companies to list overseas on a major exchange.
Furthermore, Vietnamese regulators may not really want dual listings as they draw liquidity away from their own exchanges.
How do you assess the potential of VinFast's IPO plan in the United States at the moment, in terms of legal framework and financial perspective?
VinFast's potential IPO is one of the very rare cases where foreign listing is actually possible or even necessary. The company operates in the "new economy", in this case electric vehicles (EVs). This area receives a lot of focus from an environment-social-governance (ESG) investment perspective.
Just look at what happened a few weeks ago when it was thought Volkswagen would change its name to "Voltswagen", which turned out to be a pre-April Fool's Day joke.
The size of the IPO needs to be meaningful. Around $50 billion and a local listing will not be able to absorb such large capital demand yet. Moreover, they would need some solid institutional cornerstones in such a transaction.
Due to ESG and the attention it draws from institutional investors, an overseas listing would have particular appeal. This sort of labelling is not yet of focus for local investors in Vietnam. From the point of view of timing, conditions are favourable for equities generally and for pure exposure to the EV market, which is relatively scarce.
Regarding Bamboo Airways' proposal to list in the US, might it be too early for the fledgling group to make a mark in the States?
Airlines are deep cyclicals and potentially on the rebound from the pandemic as vaccinations permit more travel and especially leisure travel. The US market is very familiar with airline booms and busts and with low cost and full cost carriers but I am not aware of any Asian carrier making a US debut IPO.
Investors in the US are largely unfamiliar with the Vietnam investment environment but this might be seen as a potentially high growth accessible and consumer driven target, or a Vietnam proxy in a market where the Van Eck exchange traded fund is all that is available to those wanting country exposure of the country.
It might work but the company is still young, the competition fierce, and Vietnam is not yet open enough, so it would be a better bet to look at Bamboo's domestic business and its ability to win market share from Vietjet and Vietnam Airlines.
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