Vietnam Bank for Foreign Trade (Vietcombank) has officially announced its initial public offering (IPO). Accordingly, Vietcombank will auction a total 97.5 million shares, 6.5 per cent of its registered capital of VND15 trillion (US$937.5 million), at Hochiminh Securities Exchange (HOSE). The auction will start at 9 am on December 26. Vietcombank Chairman Mr Nguyen Hoa Binh talked with the press about the IPO.
Why did Vietcombanks’ third quarter on year profit reportedly decrease?
In 2007, the world market has seen a lot of changes and the USD interest rate has kept falling. In addition, the crisis in the U.S. financial and currency market also affected the global financial markets. Vietcombank’s credit activities are widespread, both in Vietnam dong and foreign currencies. We have more than US$1.5 billion in deposits overseas and for financial investment. Due to the falling USD interest rate, our profits have decreased. Although we also provide loans, about US$1 billion has still been not used in the payment balance, so profits have decreased accordingly. Expenditure has still exceeded the interest receivables. However, it is necessary to affirm that Vietcombank’s activities are still stable and unchanged.
Based on the prospectus, many investors said that the profit target Vietcombank set for three years after privatisation (from 2007 to 2010) is not attractive. Could you please explain the reason?
We should look at both sides of the issue. In the long term, international banks with excellent performance have return on equity (ROE) ratio of only about 15 per cent. The banking activities reflect the growth picture of the economy. Our economy has seen a growth rate of over 8 per cent, and we think that the banking profit target of 15 per cent set by 2010 is good.
How did Vietcombank determine the initial price of VND100,000 for each share in the IPO?
This price is reasonable, because we depend on the information of appraising organisations, and the demand and supply on the stock market at the current period. In addition, Vietcombank also referred to the successful bidding results of financial organisations which have launched IPOs recently such as Bao Viet Insurance Group and PetroVietnam Fertilizer Company (PVFC).
It is said that strategic partners of Vietcombank (VCB) can hold 15 to 20 per cent stake in VCB, on the condition of the Prime Minister’s approval. Do you think foreign investors can join hands to lower the average bidding price in order to buy strategic shares at the permitted proportion at this bidding price for profit?
Investors are part of the market. Under the regulation, foreign investors are allowed to buy no more than 30 per cent of the offered 6.5 per cent of VCB’s registered capital, or less than 1.95 per cent of total registered capital, equal to 29.5 million shares. The remaining shares will be offered to domestic investors. Because we cannot calculate the number of investors attending the auction, the result is decided by the market and we cannot intervene.
However, foreign investors cannot join hands to lower the bidding price for their own profits. Strategic partners will not be allowed to attend the IPO.
From the IPO experience of Bao Viet, if Vietcombank’s IPO is not as successful as expected, what will you do?
We hope that all 97.5 million shares will be sold. If investors do not buy all shares, we will auction again, or report to the Prime Minister to change the selling proportion, reduce the selling price, or adjust the registered capital.
It would be a big issue if all shares offered in the IPO are not bought, because VCB’s registered capital of VND15,000 billion is related to the value of owners’ equity and state ownership. As of 31 December 2006, under the audited figure, the state held VND10,978 billion. If the registered capital is lowered, it would not be safe to ensure the risk.
Banking activities must comply with international standards to ensure the minimum safety ratio in capital (TAR). It means that the ratio of owners’ equity on total assets for risk must be equal or more than 8 per cent. Besides, we also have to keep the proper ratio of return on equity (ROE), if ROE is too high, over about 15 per cent, it will not good for the bank’s operation.
Could you please tell us who will be the foreign strategic partners of VCB?
We cannot disclose these partners, but one or two of the strategic partners will be allowed to buy Vietcombank shares. However, strategic partners have to pledge to actively support VCB in two fields, retailing and investment.
According to Decree No. 109, 30 per cent of the total surplus capital from this IPO will be allocated to Vietnam Commercial Bank for Foreign Trade, and the remaining 70 per cent will be paid to the state. Vietcombank will use this surplus capital to invest in projects. By the end of 2006, VCB’s bad debt rate was controlled at 2.2 per cent. In 2007, the rate of bad debts is likely to jump to 3.5 per cent due to “the change in regulations and stricter appraisal conditions under the international norm.” From now to 2010, VCB will try to maintain a bad debt rate of less than 2.6 per cent.
Reported by Lan Anh
Vietnamese
