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