Will stock market suffer from IPO-induced ‘indigestion’?

The Government may ask giant state owned corporations and banks to reconsider the dates of their IPO (initial public offering), for fear that the stock market may suffer from “indigestion” if all of them make IPO at the same time.

Tran Bac Ha, Director General of the Bank for Investment and Development of Vietnam (BIDV), has asked the Government to re-arrange the dates for the IPOs of important state owned corporations and banks scheduled to take place in the second half of the year.

According to Mr Ha, an overly high supply of shares may lead to the decrease of share prices, while creating losses for the state.

The IPOs of a series of big state owned corporations at the same time may make the market stumble. The big state owned corporations include BIDV, which will have the expected chartered capital of VND14tril ($0.875bil). Though proposing the time rearrangement, Mr Ha said that BIDV would still carry out its IPO as previously planned.

When asked if the IPO of Vietnam Industrial and Commercial Bank (Incombank), also slated for the fourth quarter of the year, would have any bad impact on either big bank, Mr Ha said tersely: “The same quarter, but not the same month”.

With the tentative chartered capital of VND10tril, Vietcombank has submitted its equitisation plan to the Prime Minister. Nguyen Thi Thu Ha, Deputy Director General of Vietcombank, said that with the current condition of the stock market, it would be difficult to sell shares at high prices, but added that the situation might be different in August.

Huynh Nam Dung, Chairman of the Mekong Housing Development Bank (MHB), said that he had not received any instruction from the Prime Minister relating to the IPO delays; therefore, the bank was now still moving ahead with its previously set plan. He said that MHB might perform IPO in October.

Meanwhile, investors have heard that other state owned giants in telecommunications and brewing are also planning to make IPO in the upcoming months.

Le Ngoc Minh, Director of MobiFone, said that the company had not received any instructions on an IPO roadmap rearrangement. MobiFone previously planned to auction its shares in December at the latest. Meanwhile, Sabeco, a brewery and drink company, is having its assets valued, and its IPO plan is expected to be drawn up to be submitted to the Ministry of Industry and the Government by early August.

After the plan is approved, Sabeco will auction shares equivalent to 20% of chartered capital in the first phase, and sell another 20% in 2008. Another brewery company, Habeco, is planning to make IPO at the end of the third quarter or early in the fourth quarter.

Economists give contradictory opinions regarding the massive IPO movement of state owned corporations.

Nguyen Dinh Cung, Head of the Macro Economic Management Division under the Central Institute of Economic Management (CIEM), said that banks should not make IPO at the same time, because the market would not be able to consume such a big volume of commodities, especially at this moment, while it is in a low period.

An economist said that the IPOs of several banks could be delayed, but Vietcombank could not delay its IPO, because the bank already issued convertible bonds in December 2005. Investors have been waiting two years for the right to become the bank’s shareholders.

Meanwhile, bankers seem to not agree with the suggestions to delay the IPOs. A bank director said that the high price of shares was not the only thing the bank wanted when making IPO. “If IPOs are delayed, the equitisation and bank restructuring process will be prolonged.”

According to an official of the State Securities Commission (SSC), the organ still does not know how to best arrange the time for IPOs. He said that it was a very big issue, and it needed to be discussed by a lot of state management agencies.

“We put a series of enterprises into auction, while the State Bank of Vietnam is trying to tighten its monetary policy by limiting banks’ loans given for securities investment and requiring higher compulsory reserve ratio,” the official said.

Meanwhile, according to the official, no one can measure the demand for securities at this moment. The State Bank still cannot release figures on foreign portfolio investment and the public idle capital volume.

“What will we say, to delay or to continue IPO plans if we do not have any basis for our conclusion?” he questioned.

Source: VNE