Panda breath: Will BikiniJet IPO be fully covered?

For anyone in front of a Bloomberg terminal, March 24 was the day when Asia’s latest semi-mythical figure arose fully formed from the waters. The ‘bikini airline billionaire’, otherwise known as Nguyen Thi Phuong Thao, was created.

Nguyen is CEO of VietJet Air – a low-cost carrier and Vietnam’s first private airline. Its own iteration of the Southwest Airlines model celebrates the launch of inaugural routes with bikini clad flight attendants, ‘accidentally’ leaks photos of models cavorting on planes in lingerie, and publishes its own version of Pirelli’s famous calendar. For an enterprise whose future is premised on increasing the number of visitors to the country, perhaps there is good business sense in reminding the world of Vietnam’s unwanted reputation for sex tourism.

However, one wonders what the diversity teams at the investment banks supporting the company’s forthcoming IPO make of such antics? The 2015 RFP for VietJet’s IPO led to a skirmish among a host of banks, including Citi, Morgan Stanley, JPMorgan, BNP Paribas and HSBC, vying for the top spot. After a round of musical chairs that saw various banks (and the airline’s CFO) come and go, the syndicate settled on the unwieldy combination of BNPP, Deutsche Bank and JPMorgan working with domestic player Viet Capital.

Asian airlines have form in this arena. In 2010 the Philippines’ Cebu Pacific drew attention to its forthcoming IPO through a viral video of dancing flight attendants performing the in-flight safety briefing. For a brief moment that year, a regional low-cost carrier trended on social media globally, culminating in a successful offering of P125 ($2.66) a share, valuing it at $2.2 billion. But after an initial fillip, the counter spiralled downward by nearly two thirds of its offering price to a record low in early 2014. The stock has recovered since then but it continues to trade at a deep discount to its initial offering.

Nguyen Thi Phuong Thao, VietJet Air

With her flight attendants already in bikinis, Nguyen used a new report about herself to draw attention to the planned IPO of 30% of the company for a valuation in excess of $1 billion. Even a cursory familiarity with Vietnam’s capital markets will suggest that this is well beyond the capacity of either of the domestic bourses. To achieve the target volume, VietJet will need to look to an international listing – something no Vietnamese issuer has yet succeeded in doing.  Singapore is the natural destination of any Asean story but presents complications on the fungibility of shares with Vietnam’s domestic exchanges (the country requires a domestic listing before any international offering). Numerous other conglomerates from Vietnam, such as Vingroup, Masan and state-owned enterprise Vinamilk, have tried to tap the SGX without success.

Investors on VietJet’s non-deal roadshow last summer recount two standout points. First, that despite being in its growth phase, it has an operating cost structure comparable with mature LCCs like Ryanair. Intuitively this feels wrong, but it is easy to get carried away by exuberance over a hot offering. For international investors it is moments like this when confidence in the credibility of the translation of local GAAP into IFRS is key.

Second is the positioning of the airline as a consumer story. Here is where the genuine excitement is to be found. Vietnam benefits from a large but young population with low rates of air travel. Tourism is growing rapidly, and coding is increasingly joining manufacturing as an engine of economic growth. 

Flappy Bird may be the country’s greatest software export to date, but with development centres on the rise, others will inevitably follow. Wouldn’t it be ironic if the coding for the holy grail of fintech apps that finally takes down the banks were to happen in one of the world’s few remaining communist countries?

So far so Kingfisher, but what comes next?

Alan Greenspan may have dubbed it ‘irrational exuberance’, but it is in Asia’s emerging markets where manufactured hysteria has played out in the grandest of Guignols. Chasing the next great thing is in the nature of the capital markets, but one should never forget how quickly sentiment and circumstances can change.

No matter the instrument or jurisdiction, in times of trouble, foreign investors invariably find themselves at the mercy of their domestic partner. If there is any moral to be found for stories of high-profile figures like the bikini airline billionaire, it is: choose your partners wisely. 

Panda Breath: (noun) a state of being where, regardless of origin, one expresses views on the world through an Asian perspective. ‘Saigon. Shit. I’m still only in Saigon. Every time I think I’m going to wake up in the jungle I find myself on the floor with strong opinions and panda breath.’