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Vietnam Airlines IPO carries significant symbolic importance

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| 14/11/2014 |

On Friday 14th November a long-awaited IPO for national flag carrier Vietnam Airlines will take place as part of Hanoi’s ongoing drive to privatize its state-owned enterprises (SOEs). Two Vietnamese organizations have registered to purchase a large majority of the 49.3M shares available, which will be sold at just over $1 each, as well as over 1,600 individual investors. The company, which has a strong domestic foothold and employs over 10,000 people, has ambitions to develop into one of Southeast Asia’s major regional airlines over the coming years. Last year (2013) it registered a 20% growth in revenue and 11% increase in passenger volume though nonetheless recorded a $28M loss due predominantly to the rising price of the US dollar against the Vietnamese Dong. Industry analysts have offered a mixed response to the IPO, with some suggesting that this privatization effort is too limited. The state will retain 75% of the company’s shares and has set aside 20% for a ‘strategic partner’ – either an established international airline or a financial institution with experience investing in the aviation industry. Thus only 3.5% of shares have been made available to the general public with the remaining 1.5% reserved for airline employees and trade unions. With the state remaining the airline’s major stakeholder, investors may lack the necessary influence to implement the meaningful organizational changes or to introduce the new strategic ideas that privatization was hoped to facilitate. On the other hand, the fact that the IPO is going ahead as planned carries great symbolic significance. Efforts to reform Vietnamese SOEs (which account for 35% of GDP) have traditionally proven difficult due to a complex web of stakeholders and a reluctance to afford greater influence to foreign parties. Previous attempts to allow private investment in Vietnam Airlines have stalled for these reasons. The airline has been described by one newspaper as the ‘crown jewel’ of the Vietnamese SOEs and, as such, the renewed willingness on the part of the government to allow at least some level of private investment in the sends positive messages about their broader commitment to progressive SOE reforms. The Vietnam Airlines IPO thus represents an important milestone in Vietnam’s privatization process, which hopes to prevent the economy from becoming overly reliant on export-orientated manufacturing and to enable the SOEs to become more financially sustainable and professionally managed. The push has already shown some signs of success, with Vietnam National Shipping Lins and the Vietnam Railway Corporation showing improved performance after rounds of privatization. Prime Minister Nguyen Tan Dung has approved blueprints to allow private investment in a further twelve SOEs over the coming 18 months including in Vinatex, the national textile and garments manufacturers. On Friday 14th November a long-awaited IPO for national flag carrier Vietnam Airlines will take place as part of Hanoi’s ongoing drive to privatize its state-owned enterprises (SOEs). Two Vietnamese organizations have registered to purchase a large majority of the 49.3M shares available, which will be sold at just over $1 each, as well as over 1,600 individual investors. The company, which has a strong domestic foothold and employs over 10,000 people, has ambitions to develop into one of Southeast Asia’s major regional airlines over the coming years. Last year (2013) it registered a 20% growth in revenue and 11% increase in passenger volume though nonetheless recorded a $28M loss due predominantly to the rising price of the US dollar against the Vietnamese Dong. Industry analysts have offered a mixed response to the IPO, with some suggesting that this privatization effort is too limited. The state will retain 75% of the company’s shares and has set aside 20% for a ‘strategic partner’ – either an established international airline or a financial institution with experience investing in the aviation industry. Thus only 3.5% of shares have been made available to the general public with the remaining 1.5% reserved for airline employees and trade unions. With the state remaining the airline’s major stakeholder, investors may lack the necessary influence to implement the meaningful organizational changes or to introduce the new strategic ideas that privatization was hoped to facilitate. On the other hand, the fact that the IPO is going ahead as planned carries great symbolic significance. Efforts to reform Vietnamese SOEs (which account for 35% of GDP) have traditionally proven difficult due to a complex web of stakeholders and a reluctance to afford greater influence to foreign parties. Previous attempts to allow private investment in Vietnam Airlines have stalled for these reasons. The airline has been described by one newspaper as the ‘crown jewel’ of the Vietnamese SOEs and, as such, the renewed willingness on the part of the government to allow at least some level of private investment in the sends positive messages about their broader commitment to progressive SOE reforms. The Vietnam Airlines IPO thus represents an important milestone in Vietnam’s privatization process, which hopes to prevent the economy from becoming overly reliant on export-orientated manufacturing and to enable the SOEs to become more financially sustainable and professionally managed. The push has already shown some signs of success, with Vietnam National Shipping Lins and the Vietnam Railway Corporation showing improved performance after rounds of privatization. Prime Minister Nguyen Tan Dung has approved blueprints to allow private investment in a further twelve SOEs over the coming 18 months including in Vinatex, the national textile and garments manufacturers.


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