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Just one step forward

Released at: 03:36, 08/10/2014

Just one step forward

Challenges await in its equitisation despite MobiFone receiving the green light to separate from VNPT.

by Minh Tien

Prime Minister Nguyen Tan Dung signed Decision No 888 on June 10, approving the restructuring scheme of the Vietnam Posts and Telecommunications Group (VNPT). The key elements of the decision are that while Vinaphone remains within VNPT, Vietnam Mobile Telecom Services (VMS - MobiFone) is to be separated and be under the direct management of the Ministry of Information and Communications (MIC). This is a very important step for MobiFone to become the “MobiFone Telecommunications Corporation” and better prepare for equitisation while enabling the operator to develop without being burdened by VNPT, creating a more competitive telecommunications sector.

New blue-chip

There are various reasons why MobiFone’s equitisation process has been delayed for a number of years. Since its establishment in 1993 it has always been VNPT’s “golden goose”. According to documents from the Ministry of Finance (MoF) submitted to the government, VNPT’s after-tax profits in 2012 were VND5,855 billion ($274.5 million), of which MobiFone contributed VND3,878 billion ($182 million). Revenues from Vinaphone and MobiFone are similar but Vinaphone’s after-tax profits are only half of MobiFone’s. The return on equity (ROE) of MobiFone is 52.1 per cent, while for VNPT it’s a modest 13.7 per cent.

Not unreasonably, VNPT is reluctant to let MobiFone go easily, as international corporations and foreign investment funds aggressively seek ways to be part of the deal. One question, though, is whether the wave of equitisations to come in 2014 and 2015 will affect the attractiveness of MobiFone shares. Giant State-owned enterprises (SOEs) such as Vietnam Airlines and Viglacera as well as many infrastructure development enterprises have been given deadlines of this year or next for their initial public offering (IPO). Even State-owned banks are to be listed on the stock market. Such an increase in supply will undoubtedly have an influence on any launch of new shares.

The current situation of the stock market, on the other hand, exhibits some advantages for investors. The downhill trajectory of the market has resulted in a price/earnings (P/E) ratio of less than 13. Analysts from the Ho Chi Minh City Securities Corporation (HSC) believe that such figures attract foreign investors, especially when those in regional markets such as Thailand, the Philippines and Indonesia fluctuate from 16 to 23. There is also evidence that foreign funds are interested in placing bets on Vietnam’s stock market, focusing on leading firms such as Vinamilk and Masan. Nevertheless, as foreign purchases of Vinamilk or blue-chips like GAS (PV Gas) have reached their limit, MobiFone holds potential for million-dollar funds looking for stocks to invest in.

MobiFone is one of the leading enterprises in this key sector of the economy, telecommunications, which appears to be a very attractive sector to foreign investors. “After the separation from VNPT, MobiFone will deploy multiple services in the field of information technology, rather than being limited to telecommunications services,” said Mr Le Ngoc Minh, Chairman of MobiFone. MobiFone’s specific moves in the future are yet to be confirmed, but recent moves indicate it will invest heavily in internet services and over-the-top (OTT) content.

The capitalised value of MobiFone was calculated by Credit Suisse at around $2 billion in 2009. With a P/E ratio of 13, provided by HSC, its capitalised value stands at more than $3.2 billion. The equitisation is expected to allow MobiFone to bring its development plan to fruition with a substantial financial supplement, advanced management systems, and modern technologies, with the possibility of joining leading telecommunications groups from around the globe. The value may eventually exceed $4 billion when the company is officially listed. France’s Orange expressed interest in a MobiFone deal five years ago and probably remains interested, as it would not only be a safe way to penetrate a market of 100 million people but also be the most effective.

Equitisation still to come

MobiFone has twice failed to keep its appointment with investors. The first time was in 2006. Back then Mr Tran Duc Lai, Deputy Minister of Information and Communications (at the time and currently), confirmed that the equitisation process would be completed within 2007 but it failed to materialise. Mr Minh, as Director at the time, then anticipated an IPO would take place through a securities trading centre in 2008. He was well aware of the fact that the telecommunications business was a sensitive one and it would take more time to complete the equitisation process than in any other sector. While his awareness was spot on, his timing was not. Credit Suisse, who was the consultant on the equitisation, did not complete a preliminary evaluation of the mobile phone service provider until 2009. Not much was done over the subsequent five years, and today Mr Minh, as Chairman, once again must re-evaluate its capitalised value.

VNPT has always requested that if MobiFone were to be separated then it should be with other subsidiaries that are not profitable. A restructuring proposal submitted to the government dated September 27, 2013 said that MobiFone should separated to establish the “MobiFone Telecommunications Corporation”, with transfer of ownership and related financial obligations of the Vinasat 1 and Vinasat 2 satellite networks, PT Finance, and VNPT’s shares in 62 enterprises with total capital of VND1,640 billion ($77 million). The proposal was unanimously agreed by both VNPT and MIC.

It was rejected, though, in the Prime Minister’s Decision No 888 as it was not supported by MoF, who believed that the Vinasat satellite systems were not an appropriate business line for MobiFone. The same argument may be applied to the other 62 businesses VNPT wants to offload. It is worth noting that VNPT’s effectiveness is not as good as expected, despite it owning major names such as Vinaphone, Vietnam Telecom National, and VNPT International. Except for MobiFone, the others aren’t particularly efficient. It was only MobiFone’s after-tax profit that saved VNPT from a million-dollar loss. On its own, MobiFone would be much more attractive in the eyes of investors. The satellite companies, meanwhile, not only have a business element but most importantly have a national security element, and hence would severely affect MobiFone’s equitisation process.

Some may question the sudden change in mindset of MoF after nearly a decade of trying to equitise the cash cow. There may be two simple reasons for it. The first is that MobiFone’s equitisation process is part of the government’s overall SOE reform and has specific deadlines. The other could be the $1 billion or so to go to State budget if the equitisation goes smoothly. Under a State management mechanism, MobiFone has an ROE of more than 50 per cent and is expected to grow after equitisation. The State budget would still be the beneficiary if the State continues to implement any further divestment.

With Decision No 888 it is believed that the equitisation of MobiFone will certainly happen much faster. Moreover, as many of preparations for equitisation have already been conducted, it shouldn’t take as much time as for other enterprises. Analysts, though, still believe that the deadline is too pressing as key activities in the process, such as the evaluation, staff planning, and discussions on the sale of ownership, have not been specified as yet.

The space for foreign investors in the equitisation, according to Mr Pham Hong Hai, Director General of the Authority of Telecommunications under MIC, may be as much as 49 per cent given the WTO commitments on infrastructure businesses, of which telecommunications is a part. However, the figure will also depend on the Trans-Pacific Partnership (TPP) negotiations, which are currently underway and will not be completed before mid-2016. Nearly ten years have passed since the day MobiFone’s equitisation was initially supposed to be completed, and it seems there is still some way to go.

MobiFone’s contribution to VNPT, 2012



VNPT consolidated financial statement

MobiFone contribution

In value



$ million




Total revenue

$ million




Pre-tax profit

$ million




After-tax profit

$ million




Return on Equity (RoE)





Source: VNPT consolidated financial statement, 2010-2012

VMS - MobiFone


  • Foundation of the Mobile Telecom Services Centre VI.


  • Foundation of the Mobile Telecom Services Centre V.
  • Value Added Services Centre founded.
  • MobiFone ranks first in Vietnam’s mobile telephone subscription market share.


  • Foundation of the Mobile Telecom Services Centre IV.


  • VMS liquidates BCC with Kinnevik/Comvik (Sweden).
  • Ministry of Posts and Telematics (now the Ministry of Information and Communications) officially decides to equitise VMS.


  • VMS commits to a Business Cooperation Contract (BCC) with Kinnevik/Comvik (Sweden).
  • Foundation of the Mobile Telecom Services Centre III.


  • Foundation of the Mobile Telecom Services Centre I & II.


  • Foundation of Vietnam Mobile Telecom Services Company (VMS).

Source: VMS MobiFone

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