Less attractive: Workers at a garment factory in Ho Chi Minh City. The absence of high-quality IPOs has made Vietnam’s stock market less attractive to major international investors. — Bloomberg
HANOI: Over the past few years, Vietnam’s stock market has seen a notable decline in large-scale initial public offerings (IPOs), raising concerns about the development of the capital market.
The primary reason for this downturn appears to be the country’s stringent listing requirements, which, while aimed at maintaining market stability and protecting investors, have also made it difficult for companies, especially in the technology sector, to go public, said experts.
At a recent financial conference in Ho Chi Minh City, Don Lam, CEO of VinaCapital, highlighted the clear reduction in IPO activity in Vietnam.
According to Lam, IPO values have only ranged between US$15mil and US$70mil annually since 2019. This marks a significant drop from the robust years before, where IPO values ranged from US$500mil to US$2.6bil.
The scarcity of major IPOs has had a noticeable impact on Vietnam’s stock market, leading to declining interest among foreign investors.
Currently, foreign trading accounts represent just 0.5% of total accounts, with foreign participation steadily diminishing, he added.
Further data from FiinGroup reinforces this concerning trend.
In 2018, international investors accounted for 30% of the domestic market’s total stock transactions.
By 2022, this figure had plummeted to just 14.8%. This percentage is alarmingly low compared with other Asean-5 markets, where foreign investors account for over 40% of total transactions.
Experts said the absence of high-quality IPOs has made Vietnam’s stock market less attractive to major international investors, contributing to the stagnation of the VN-Index over the past two decades.
While other regional markets have evolved, Vietnam has struggled to maintain momentum in its equity markets.
Absence of tech IPOs
One of the most striking aspects of the country’s IPO drought is the lack of technology companies making their public debut.
On another conference about the matter held in Hanoi, Nguyen Ngoc Anh, chief executive (CEO) of SSI Asset Management, pointed out that Vietnam has not witnessed any significant tech IPOs in the past decade. Even during the country’s IPO boom between 2017 and 2019, the technology sector remained absent from the public markets.
This is in sharp contrast to Indonesia, where tech unicorns like GoTo Group and Bukalapak successfully listed, raising billions of dollars and strengthening their positions in the global market.
Anh stressed that with international investors, there was a clear willingness to invest in promising technology companies in Vietnam. However, the paradox lies in the fact that there are currently no suitable firms available for investment.
Among the VN30, which represents the top 30 companies in terms of market capitalisation on the stock market, there is only one technology name, FPT Corp, and its market cap makes up only 5% of the VN30.
While FPT is indeed a standout performer, it has no remaining capacity for foreign investment.
“As a result, despite the interest from foreign investors in Vietnam’s technology sector, we have no viable options to present to them,” Ngoc Anh said, reflecting the current reality.
Many Vietnamese startups have grown rapidly in recent years, but some have considered listing on foreign exchanges, bypassing Vietnam’s markets entirely.
A representative from a securities firm explained that when unicorns or companies nearing unicorn status approach them for fundraising advice, they frequently ask: “Can we secure capital in foreign markets?” rather than questioning: “Can we raise funds and list in the Vietnamese market?”
“Almost no companies set goals or have confidence that they can successfully raise funds and list within Vietnam,” the representative noted.
One notable case is Tiki Global, established in 2021 in Singapore, which then acquired 90.5% of Ti Ki Co Ltd, the operator of the Tiki eCommerce platform in Vietnam.
In mid-2020, Tiki’s CEO expressed hopes that the government would ease listing requirements for retail technology companies. Unfortunately, Tiki had to go abroad to secure its listing and raise funds.
Prior to Tiki, several other startups adopted similar strategies by setting up holding companies overseas, often in Singapore or Hong Kong, before reinvesting in their domestic counterparts.
Companies like Base, Coc Coc and Topica exemplify this trend. Presently, high-potential startups such as MoMo, VNPay and Sky Mavis have been unable to list in Vietnam and are consequently seeking to raise capital from private investment funds or are opting to register abroad.
Domestic companies, particularly in the technology sector, hesitate to entertain the idea of conducting an IPO on their home ground due to the current regulatory framework, which is perceived as challenging and fraught with technical barriers that are difficult to navigate.
Strict regulations
According to the regulations outlined in the Securities Law, companies aiming to conduct an IPO to list on the stock exchange must be profitable for two consecutive years leading up to the IPO and must not have accumulated losses by the time of the public offering, said Dr Tran Van, former deputy head of the finance and budget committee.
However, it is often difficult for technology companies to avoid accumulated losses, as they operate under a distinctive model that necessitates substantial capital investment from the outset to drive technological innovation, expand their user base and develop operational infrastructure, he added.
The country director for Vietnam at Warburg Pincus, Minh Do, pointed out that for technology startups, their future is not determined by cumulative losses at the time they seek to raise capital.
Even if they show losses, investors may still recognise their significant growth potential.
For instance, one of the rare technology unicorns in Vietnam has strong financial indicators but still reported losses in its early stages due to considerable investments in technological infrastructure and market expansion.
This reality leaves these companies with limited opportunities to go public in Vietnam.
As a result, many experts are advocating for a relaxation or adjustment of the listing requirements on the Ho Chi Minh Stock Exchange or the Hanoi Stock Exchange to be more flexible. — Viet Nam News/ANN
