The initial public offering of an ambitious young Vietnamese airline is set to test global investor appetite for the sector in general and, more specifically, for this fast-growing Asian frontier state.
Vietjet Aviation, founded just five years ago by serial entrepreneur Nguyen Thi Phuong Thao, hopes to sell shares in the second quarter of the year, with Hong Kong or Singapore the most likely listing destination. Hanoi-based VietJet aims to raise $300 million by selling a 30% stake, valuing the privately-run carrier at around $1 billion. Four investment banks have been picked to underwrite the sale: BNP Paribas, Deutsche Bank, JPMorgan, and VietCapital.
Few can deny the ambitions of either the airline or its owner. Thao, who owns 95% of the company, is on track to become Southeast Asia’s first female self-made billionaire once the listing is done and dusted. The 45-year-old, who made her first fortune trading rubber and selling fax machines, has stated her desire to transform VietJet into the “Emirates of Asia”, in reference to the Dubai-based long-haul carrier. “We plan to make VietJet a global airline,” she has said.
The IPO will offer a window into the minds of global investors on many levels. VietJet is without doubt one of Vietnam’s more exciting corporate success stories. Revenues more than tripled in 2015, to D10.9 trillion ($490 million), with net income passing D1 trillion for the first time.
A January report from CAPA Centre for Aviation in Sydney tipped the airline to carry 15 million passengers in 2016, against 10 million the previous year, when the firm posted a load factor of just shy of 90%. In November 2015, it announced it was buying 30 new Airbus A321 narrow-body airliners, doubling the size of its fleet.
CAPA also pointed to the firm’s need to expand regionally and globally “using wide-body aircraft as the domestic market [becomes] saturated”.
VietJet currently flies from Hanoi to 21 destinations in Vietnam and 11 across Asia, including Seoul, Tianjin, Kuala Lumpur and Bangkok. CAPA says it has already captured 40% of the domestic market, and tips it to overtake Vietnam Airlines – which raised $51 million in 2014 via its own stock listing – this year as the country’s largest carrier. A new reservation system will allow the firm to process transit passengers, boosting international traffic.
To many, VietJet’s looming stock sale also constitutes a rare test of investor appetite for one of Asia’s faster-growing but less active frontiers.
Vietnam’s economy grew by 6.7% in 2015, the fastest pace of expansion since 2007, boosted by a resurgent property sector and record sales of mobile phones and automobiles.
HSBC expects economic growth to remain strong, with GDP coming in at around 7% this year and next. VietJet’s stock sale will aim to tap directly into a fast-growing, materialistic and overwhelmingly young economy, via a well-run company with outsized ambitions.
There are concerns. Frontier and emerging markets have in general become a tougher sell in recent quarters, as concerns rise about high levels of corporate indebtedness and slowing growth rates. VietJet, for all its potential, will need to prove its mettle by pushing abroad, into countries that abound with sharp-elbowed carriers, operating in highly saturated and low-margin markets.
To Vietnam’s authorities, the greater concern should be VietJet’s likely decision not to list shares at home, on the bourses of Ho Chi Minh City or Hanoi. Bill Stoops, chief investment officer at Dragon Capital in Ho Chi Minh City, laments that the country’s shallow capital markets are dragging on the rest of the economy. “There aren’t enough good, undervalued, listed stocks here,” he says. “It’s the main reason why Vietnam doesn’t attract enough capital from global investors.”
Authorities in Hanoi are trying to redress this problem. In June 2015 the premier, Nguyen Tan Dung, promised to scrap foreign ownership rules limiting how much of a state-owned firm a foreign investor can own. Analysts are optimistic that primary issuance will also tick up sharply this year, after a sluggish 2015 during which just one stock sale, the $49.3 million IPO of a tiny stake in Airports Corporation of Vietnam, was completed.
This year offers greater cause for hope. Food processing firm Vissan completed the first big stock sale of the year in the first week of March, raising $41 million. MobiFone is planning a stock sale that could value the telecoms firm at around $4 billion.
Lien Le Hong, head of institutional research at Maybank, said in a February report that 2016 was set to be “a milestone year, with new IPOs and listings being the game-changer, enlarging the market size by 40% to 50%”.
