13:57 (GMT +7) - Friday 28/07/2017


History repeats

Released at: 07:30, 27/10/2014 SOE Equitisation

History repeats

With a further delay perhaps on the cards, investors may begin to wonder what is actually going on at the garment and textile giant Vinatex.

by Minh Tien

The initial public offering (IPO) of the Vietnam National Textile and Garment Group (Vinatex) first appeared in the blueprints of the government’s State-owned enterprise (SOE) equitisation process many years ago. It was initially planned to be conducted on July 1, 2013, before Mr Vu Duc Giang, who was Chairman of the Board of Members at the time, announced a two-month delay.

At a press conference back then Mr Giang said that they were forced to delay the IPO after many investors that expressed interest were found to lack substance and could not be truly supportive of the group’s post-IPO management process. The then-Chairman claimed that the root cause of the delay was Vinatex’s strict requirements on investors. In addition to capital, the group insisted on three other selection criteria: investors must come from the same industry with advanced management levels and market expertise; be able to provide flexible and appropriate financial management solutions; and not be restricted by any investment regulations.

The criteria now in place for investor selection ensures that each can contribute to the group in different ways, as regards technology, management, and market expansion, among others, as a springboard for Vinatex to speed up its operations after the IPO. The proportion of the shares offered to strategic investors had been cut to 24 per cent but the selection criteria remains unchanged. What has changed, and is worth noting, is that the government is extremely determined to carry out SOE equitisation in general and the Vinatex IPO in particular, regardless of the results of strategic investor selection.

On the one hand, the lack of information on strategic shareholders may make it more difficult for financial and other strategic investors to evaluate their potential and decide to invest. On the other hand, the strategic partner selection process simply can’t last forever. An exclusive source of VET said that the list of potential strategic partners has been submitted to the Ministry of Industry and Trade (MoIT) and the selection process compelled to be completed simultaneously with the IPO. The identity of potential partners is yet to be revealed, indicating a possibility that the IPO may be postponed yet again, though this is unlikely to be given as the reason. 

The newly-appointed General Director of Vinatex, Mr Le Tien Truong, said that the reason for the delay was that Vinatex acts as a holding company rather than a production company, with 37 affiliates and 18 subsidiaries. It takes longer, therefore, for investors to fully understand the group and assess the investment potential. With IPO plans for Vinatex being announced publicly many years ago, investors have certainly had enough time to do their homework. Mr Andy Ho, Managing Director and Chief Investment Officer at VinaCapital, believes that the lack of quality information shared with investors is largely to blame.

Experts in the field are doubtful that Vinatex’s IPO will happen this year. Whether conducted this year or the next, Vinatex must clean up its portfolios by fostering divestment from other businesses and concentrate on its core business, in order to improve information quality on net revenue and after-tax profits, and consequently come up with a better share price.

Preparing for equitisation

Auditors KPMG Vietnam have announced that Vinatex’s 2013 consolidated revenue was VND10,953 billion ($517 million), down 11.9 per cent compared with 2012, consolidated net after-tax profit VND233.5 billion ($11.03 million), down more than 50 per cent, and gross profit VND1,335 billion ($63 million), down 11 per cent. Gross profit margins reached 12.2 per cent, up slightly from 12.1 per cent in 2012. 
Consolidated business figures over the last few years can be divided into two phases. The first was a growth phase, with compound annual growth rate (CAGR) in consolidated net revenue of 17 per cent during the 2008-2011 period. Then came a decline phase, in 2012 and 2013, with consolidated revenue falling 37 and 12 per cent, respectively, due to a number of factors.

In 2013, Vinatex recorded significant losses primarily because of falls in its net profits, as lower interest rates resulted in lower interest income. Mr Truong explained that profits were lower but production managed to remain the same, but VET’s own research showed that a large number of companies in the group were operating inefficiently last year. 

The group is currently in the middle of a transformation process, with a focus on restructuring to prepare for the equitisation and it is understandable that it should face