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Double act

Released at: 20:00, 28/01/2017

Double act

Photo: Duc Anh

Neither equitization of Sabeco or Habeco has proceeded smoothly.

by Duy Anh & Quynh Nguyen

Vietnamese like to get together and whenever they do there is beer on the table. This may explain the interest in the equitizations of the country’s two biggest beer producers. The Saigon Beer Alcohol and Beverage Corp. (Sabeco) in the south and the Hanoi Beer Alcohol and Beverage Corp. (Habeco) in the north have been set for equitization in 2016 or 2017 and both are now listed on the Ho Chi Minh Stock Exchange (HoSE), where their shares are shooting upwards.

Vietnam’s biggest

Vietnam, where beer sales are forecast to expand at an annual rate of 7.2 per cent by 2020, will see its burgeoning middle class triple to 33 million over the next four years. Beer consumption in 2016 was forecast to rise 4.1 per cent to 4 billion liters from 2015; the highest in ASEAN, according to Euromonitor International.

While Habeco is proud of its Bia Hanoi, Sabeco feels likewise about Saigon Special and 333. The king of the south commands the local market, enjoying a 40 per cent market share; nearly double its nearest competitor, Heineken NV, with 25 per cent, and well ahead of Habeco, with 18 per cent.

With 54 subsidiaries and joint ventures and 23 breweries nationwide, Sabeco has a total annual capacity of 1.8 billion liters. In 2015 its capacity utilization rate was 82 per cent. It owns eleven trading companies that distribute its products throughout the country and it also exports to 27 markets. Overseas sales, estimated at $1.62 million in 2014, account for only a small part of total revenue. In the first nine months of 2016, Sabeco’s net sales grew 8.9 per cent year-on-year to $959 million, while net profit rose 24.5 per cent to $161 million. The company reached its profit target ahead of schedule and plans to pay a cash dividend of 50 per cent for the year. In 2017 it targets sales of $1.3 billion and net profit of $171 million. 

Sabeco has been equitized before, as has Habeco, with the State selling 5 per cent to Dutch brewer Heineken in 2008. The State still holds 89.59 per cent, worth at least $1.8 billion, and has planned to offload its holding in two phases: 53.59 per cent in 2016 and the remaining 36 per cent sometime in 2017. That plan is now officially obsolete, with 2016 wrapping up and no sale made. On a positive note, those with strong financial capacity should stay ready to battle when the back-up plan comes into being. “We don’t care whether they are foreign investors or local partners, the highest price is the important thing,” said Mr. Le Hong Xanh, CEO of Sabeco.

Seven companies, including Heineken NV, Anheuser-Busch InBev NV, and Asahi Group Holdings Ltd, have already registered to bid for Sabeco, which listed about 641.3 million shares at an initial price of VND110,000 ($4.84) on December 6. With its shares closing at VND225,000 ($9.89) on December 16, Sabeco’s market capitalization stood at $5.6 billion, the second-highest in the country after Vinamilk.

TPP twist 

Those who want to enter into the leading Southeast Asian country in beer consumption via the sale may have to wait a little longer, given that Sabeco’s listing has been delayed multiple times over the last few years. “We all know that Sabeco did not want to list because of their own reasons,” Executive Chairman of Dragon Capital Mr. Dominic Scriven told VET. More so than other equitizations, that of Sabeco has symbolic importance. “It shows that there has been sufficient determination from the government this time,” Mr. Scriven said.

The sale of Sabeco will now kick off in April, Head of the Ministry of Industry and Trade (MoIT)’s Enterprise Reform Commission, Mr. Phan Dang Tuat, was quoted as saying to foreign media in December. The size of the stake is still to be decided, with reports from those in the know putting the figure at at least 40 per cent in one sale.

Surprisingly, unlike previously, when delays to Sabeco’s equitization caused more harm than good, delaying it until April is now better for the company and the government. Currently on life support, the TPP would have removed the 47 per cent duty on beer imports Vietnam imposes. “The absence of the TPP will protect the local brewing sector,” CEO of PXP Vietnam Asset Management, Mr. Kevin Snowball, was quoted as saying during an interview with foreign media in December. With the trade pact now unlikely to proceed, not only will the southern brewer retain a huge advantage in the local market thanks to import tariffs, the government could also gain more from the sale.

The only problem is whether the government prefers to sell a majority of Sabeco in one hit or prefers a “bits and pieces” approach, like the State Capital Investment Corporation (SCIC) did with Vinamilk. The measly 9 per cent on offer caused some disquiet among the dairy giant’s potential shareholders, with 3.6 per cent on offer remaining untouched.

From a foreign investor’s perspective, the question arising from a minority stake sale is whether the government wants to raise money or develop a public company. “I’m sure there are people who will pay a high price but then the company belongs to someone else,” said Mr. Scriven. “Even though some people in the government have said they don’t care who buys as long as it’s at a good price, perhaps not everyone shares that view.”

Two sides to the story

Underway since October 31, negotiations between Habeco’s second-largest shareholder, Carlsberg, and MoIT over a majority stake sale has yet reach a mutual agreement. The State, with an 81.79 per cent holding, is keen to take the market price as a reference for the sale. CEO of Carlsberg Vietnam, Mr. Tayfun Uner, meanwhile, said the surge in the company’s share price does not accurately reflect the underlying value of the business and is mainly due to speculative buying on very thin volumes. Habeco shares closed at VND210,000 ($9.23) on December 16 after initially being listed at VND39,000 ($1.71), a price Mr. Uner described as fair. The government announced in August it wants to sell its 82 per cent stake for $404 million, or about VND48,000 ($2.11) a share, which according to Mr. Uner is a reasonable valuation. 

With a 17.51 per cent holding, the Danish brewer has first right of refusal in the sale, thanks to a partnership agreement signed in 2008. Carlsberg is keen to purchase a 61.79 per cent holding and plans to compete with other bidders for the 20 per cent stake being sold at auction, and expects the government to sell it the larger holding at the winning auction price. “We want to support the Vietnamese Government to make a success of this, which obviously means getting a fair price,” Mr. Uner was quoted as saying to foreign media in November. Carlsberg said it is willing to pay VND50,000 ($2.2) per share; the same price it paid in the 2008 IPO.

According to Carlsberg, the market price of the Hanoi brewer is purely artificial. “Habeco’s selling price should reflect that its market position has fallen to third from second since we purchased stakes in 2008,” Mr. Uner said. Interestingly, the Danish brewer is one reason why Habeco now sits in third position. Habeco’s CEO, Mr. Nguyen Hong Linh, said that Carlsberg has not complied with commitments made when proposing to become Habeco’s strategic investor eight years ago. It proposed supporting the Hanoi brewer in its development and human resources training, technology and equipment exchange, market expansion and corporate governance, but has yet to fully do so. 

Habeco’s business performance may be going through a downturn but the opposite is true of its assets. Beer might be cheap, but golden land plots are not. Holding the land use rights in prime locations across northern Vietnam may also be behind its soaring share price. As with Sabeco and Vinamilk, Prime Minister Nguyen Xuan Phuc has noted that “land use rights at Habeco must be taken into account during the valuation process.”

While the partnership agreement signed in 2008 is still legally binding, some of the terms are no longer appropriate under current law. According to a lawyer with knowledge of the partnership agreement, the selection of a single foreign strategic investor for the majority of the stake, in this case, may be in conflict with regulations in the Competition Law and the Trade Law or the criteria for State divestment from joint stock companies. Nevertheless, Mr. Nguyen Hoang Hai, Vice Chairman of the Vietnam Association of Financial Investors (VAFI), told VET that the partnership agreement must be respected no matter what. In 2008, “when no foreign investor was pleased with Habeco’s shares and financial investors would have struggled to outlay a large sum, Carlsberg was a life saver,” Mr. Hai said.

Furthermore, “in all these years, MoIT has maintained total control over Habeco and appointed incapable people at the company, while Carlsberg, as a minority stakeholder, did not have much of a say about the management board,” he went on. “It is therefore not true to say that Carlsberg is the one to blame for the downturn in Habeco’s business results over the last few years.” 

Regarding a “reasonable” sales price, Mr. Hai believes VND48,000 ($2.11) a share does not represent a loss for the State and would see it earn a profit, given the equitization has been delayed multiple times and MoIT has improperly managed the brewer. Of greater importance, if negotiations fail there may be some fallout for Vietnam-Denmark relations, he believes.
The disagreements over Habeco’s sale price are yet to be resolved. Both parties, however, are legally required to commit to the partnership agreement’s terms and conditions, even though due diligence may have been missing on the part of the Danish brewer. “Carlsberg, with the expectation that the Vietnamese Government will respect our first right of refusal, wants to keep and grow the Hanoi brand,” said Mr. Uner.

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