Foreign funds suffer losses after acquiring shares of State-owned enterprises

According to report of Vietnam Opportunity Fund (VOF) managed by VinaCapital, in the first quarter, VOF spent over VND1 trillion (about $45 million) purchasing shares of Binh Son Refining and Petrochemical Company (BSR) and PetroVietnam Power Corporation (PV Power) auctioned in IPOs.

BSR and PV Power are two large-scale State-owned enterprises (SEOs) that conducted IPOs at beginning of this year. BSR, PV Power and other SEOs such as PV Oil, IDICO, Vinafood, Genco3 and Hapro have made a record of IPO value in the stock market. The State has received tens of trillions of VND thanks to IPOs of these SOEs.

However, after IPOs, shares of these enterprises listed in the stock market have fallen sharply. This has led to investors, including foreign investors, who acquired most of the shares in IPOs have suffered temporary losses.

Specifically, according to VOF, it bought nearly 10 per cent of the shares auctioned in BSR’s IPO priced at around VND22,000 ($0.97) each, four per cent lower than the average awarded price and recorded the investment value of $25 million.

BSR is the operator of the Dung Quat oil refinery. This is the first plant in Vietnam which is supplying about 30 per cent of domestic petroleum demand. The plant is planned to be upgraded and expanded to increase capacity by 20 per cent to 7.9 million tons of crude oil per year.

According to VOF, BSR's revenue and net profit in 2017 were estimated at $3.5 billion (nearly VND80 trillion) and $350 million (appropriately VND8 trillion) respectively. This profit gives BSR a much more attractive valuation (P/E ratio is about 5.6 times) than the average valuation of the stock market at the same time (P/E is up to 20 times).

Contrary to expectations of BSR’s investors, BSR’s shares after IPO have gone negative. After being listed at VND31,300 ($1.38), BSR’s share has dropped continuously and is currently priced at less than VND22,000 ($0.97), lower than VOF's investment cost.

Recently, foreign investors were astonished at the arrest of Deputy CEO Vu Manh Tung, Chairman Nguyen Hoai Giang and Chief Accountant Pham Xuan Quang of BRS due to their involvement in Ocean Bank case.

In addition, according to the State Audit, BSR’s total value increases by nearly 8 per cent or VND5,359 ($235 million) compared to its value at the date of equitization. This means that the State’s capital in BSR could be adjusted upwards.

Furthermore, BSR's 2017 financial statement shows that BRS’s after-tax profit in 2017 was over VND7.6 trillion ($337 million), much lower than the company's estimate of VND8 trillion ($350 million) announced before its IPO.

In addition to the BSR, VOF has also spent more than $20 million to purchase PV Power's stake in the auction. This is the second largest electricity producer in the country, accounting for about 10 per cent of total capacity, after Vietnam Electricity Group (EVN).

PV Power is considered to have a great advantage to develop in the electricity market in Vietnam, especially power and gas, thanks to the advantages of its parent company (PetroVietnam) which is the exclusive unit to purchase and supply gas. Last year, the company's profit doubled, reaching more than VND2 trillion ($88 million).

However, like BSR, PV Power's share price dropped continuously from VND17,800 ($0.78) to VND13,300 ($0.59). PV Power’s share has recently rebounded to VND14,800 ($0.65) after PV Power announced its net profit growth of 37 per cent in the first quarter of 2018.

PV Power has been assigned to invest in the projects of Nhon Trach 3 and Nhon Trach 4 thermal power plants with the total capacity of 1,500 MW. The company's current factories have a total capacity of more than 4,208 MW.

According to PV Power, it is still seeking strategic partners to sell a 28.9 per cent stake. The Korea-based Taekwang Power Holdings is one of the most potential investors and has contacted with PV Power.