VAFI warned about problems with delaying IPOs

The Vietnam Association of Financial Investors (VAFI) on July 17 expressed its concern over the re-consideration of the timing for big corporations’ IPOs.

Government officials are worried that the massive number of IPOs planned by big corporations will cause losses for the state, as the seller of the ‘commodities’, especially in the context of the quiet market. However, according to VAFI, it seems to be a contradiction if the state, on one hand, wants to sell shares at IPOs at the highest possible prices, on the other hand, does not want the market to be too hot.

One would think that it would be wiser to delay IPO plans in order to avoid the oversupply of commodities on the market. However, VAFI has warned that big problems will arise if IPOs are delayed. This would result in the slowdown of the equitisation process which has been criticised for going slowly in the last years. More importantly, this would make foreign investors impatient and discouraged, especially global financial institutions which are looking to enter the market.

Dr of Economics Phan Minh Ngoc also voiced his worries in Thoi bao kinh te Vietnam on July 18 about the possible delay of IPOs.

If we delay the IPOs, till when will the IPOs be delayed? Who can show the most suitable moment for making IPOs? Which enterprise will be allowed to make its IPO first, and which will be the second, the third? What is the basis that will be used to draw up the list and timetable for the IPOs of every enterprise? Mr Ngoc raised a lot of questions, which, according to him, remain unanswerable.

Mr Ngoc also said that investors should not ‘accuse’ the State Bank of Vietnam of making the stock market stagnant by tightening loaning for securities investment deals. In fact, state-owned banks have very low proportions of lending to securities investors, and they can still lend more money to securities investors if they want. It so happens that the banks do not want to raise their outstanding loans to these clients, and they have every reason to do that.



Some experts have said that investors will have no more money to buy shares at the IPOs as the idle capital among the public is limited (the capital of the public depends on income and GDP growth), and commercial banks have cut their loans for securities investments. However, Mr Ngoc said these should not be seen as reasons to delay IPOs, as the delay would not help settle the problem. He said that usable capital would not increase even if the IPOs were delayed for some more time.

If one aimed at avoiding the oversupply of commodities on the market, the only solution would be to stop IPOs indefinitely. This scenario will not occur as it comes contrary to the equitisation process initiated by the Communist Party and the state.

Mr Ngoc said that if no more shares of big corporations were to be provided, the market would remain gloomy, as investors would be discouraged by the lack of new faces.

Of course, the low prices of shares would cause losses for the state; however, this is not a bad thing. It would be worse if shares of enterprises are overvalued as the result of the serious shortage of commodities on the market.

Source: VNE