Foreign investors have been waiting, with growing impatience, for Vietnam to make a colossal change: let them own majorities of the country’s hot but elusive listed firms. This month a slew of companies you might want to invest in – as proxies of the fast-growing Southeast Asian economy – are holding their first annual general meetings where it makes sense to discuss opening further to foreign funds. In June, after two years of on-again, off-again discussion, the government approved a decree allowing Vietnamese companies to go as high as 100% foreign, in principle. Says one investment research firm in Hanoi, “a lot of companies” will get approval at their early 2016 annual general meetings to extend foreign ownership limits.
But while foreigners may be rattling the cage to get in and listed firms could use the capital, some of today’s major Vietnamese investors including some backed by the Communist government want to keep their edge. Companies also would need to endure potentially embarrassing pains of overhauling their books to attract primo foreign funds, which expect speedier accounting and stronger financial transparency than local investors do. Due to hesitation among companies plus the slow arrival of implementing rules to back up the decree, as of March just three of Vietnam’s 865 listed firms had raised their foreign ownership limits past the old 49% maximum.
The annual general meetings then might not unleash that horde of higher investment caps, meaning restless foreign firms may just go stir crazier.
“A handful of companies will increase the foreign ownership limit this season,” says Fiachra MacCana, research head with the brokerage Ho Chi Minh City Securities. “It will be done on a one by one basis. As it’s an extremely complex issue involving many arms of the government, companies are moving very cautiously.”
Foreign funds, which own about 15% of Vietnamese shares today, see Vietnam’s flagship firms as stand-ins for a manufacturing-intensive economy that’s growing at more than 6%. A lot of blue-chip firms long ago reached today’s foreign ownership limits, hampering market liquidity and naturally making investors restless. Some funds had marketed Vietnam to foreign investors on the idea of eventually owning majority shares of blue chips.
During annual general meetings so far, two real estate developers have decided to extend foreign ownership to 60%. One of them, Hoang Quan Consulting, Trading, and Real Estate Services, had seen strong interest from investors elsewhere in Asia and wanted to become more transparent, the Vietnam Investment Review reports. The other, Thu Duc Housing Development Corp., will divest from non-core businesses such as cargo handling because the legal ownership limits for these sectors remain around 50%. The property market in Vietnam began turning around in 2014 after a state asset management agency stepped in to ease bad loans. Now a fast-growing middle-class and increased foreign direct investment are fueling demand for new units, a source of enthusiasm for investors.
But the firm perhaps most heavily watched, Vinamilk, shows signs of shying away despite high hopes among investors. Foreign asset managers consider the dairy producer a well-managed icon of evolving consumer tastes in the country of about 92 million people. It’s expected in May to consider raising foreign ownership limits, but some fear a state investor with a large minority stake will try to stop the foreign space from reaching 100%, effectively keeping much of the influence it exerts today.
“If Vinamilk gets this right, we still feel the market has tremendous upside,” says Kevin Snowball, chief executive officer with PXP Vietnam Asset Management in Ho Chi Minh City. “If not, we might as well all go on holiday until they figure it out because the tail will continue to wag the dog and that gets boring after a while once you're over the novelty.”
