Vietnam reboots privatisation push

Government selling stakes in brewers and a milk company to raise much-needed cash

Kegs of beer at a brewery of the state-owned Hanoi Beer Alcohol Beverage Corp. To reduce its fiscal burden, Vietnam's government aims to raise billions of dollars by selling stakes in state-owned brewers.
Kegs of beer at a brewery of the state-owned Hanoi Beer Alcohol Beverage Corp. To reduce its fiscal burden, Vietnam's government aims to raise billions of dollars by selling stakes in state-owned brewers.PHOTO: AGENCE FRANCE-PRESSE

A steady evening drizzle does nothing to dampen the mood at a party in Bui Vien Street.

Makeshift stalls take over the pedestrian walkway as foreign backpackers soak up the sights in this boisterous part of town better known as Ho Chi Minh City's beer strip.

"It's the best place for the cheapest beer. I've been here every night for the last three days," says British student Brian Cox, while holding up a bottle of the popular local pour Saigon Red, one recent evening.

Now foreign breweries want a piece of the action in the region's biggest beer market. And the Vietnamese government is welcoming them.

Vietnam, one of South-east Asia's fastest-growing economies, is privatising some of its prized assets as the government tries to reduce its debts.

In addition to its equity interest in two giant beer companies, Hanoi is also looking to sell its stake in the region's largest milk company.

With annual gross domestic pro- duct (GDP) growth at a healthy 6 per cent over the past three years and a burgeoning middle class among a population of 94 million people, investors are making a beeline for this economically liberal communist state.

Up for grabs are the country's top breweries - Saigon Beer Alcohol Beverage Corp, or Sabeco, and Hanoi Beer Alcohol Beverage Corp, or Habeco.

These two state-owned enterprises (SOEs) corner 60 per cent of Vietnam's lucrative beer market, and are being eyed by the likes of Dutch brewer Heineken, SABMiller, and Japan's Asahi Group Holdings and Kirin Holdings.

Milk, another big industry in Vietnam, is also on the table.

The government is offering a 9 per cent interest in Vietnam Dairy Products, or Vinamilk, which ranks as the country's largest company and South-east Asia's biggest milk producer by market value.

Both are large, and growing, industries in Vietnam.

Maybank Kim Eng estimates the Vietnamese spend US$3 billion (S$4.3 billion) annually to purchase about 3.4 billion litres of beer, making the country the region's largest beer market.

And there is much room for growth because of the country's young population and expanding middle class.

Meanwhile, dairy consumption is estimated at 19 litres per capita last year, trailing milk drinkers in Malaysia and Thailand at 51 litres and 34 litres, respectively.

This is not the government's first attempt at divestment. SOEs have long dominated the economy in commercial banking, energy, transportation and logistics. But a majority of them are poorly managed and highly leveraged.

Vietnam began its privatisation plan in early 2000 but the programme suffered setbacks largely because of internal resistance from senior management at SOEs determined to protect cosy arrangements from sub-contracting and procurement.

This time, privatisation is a central reform platform for the new communist leadership determined to keep annual economic expansion above 6 per cent.

It is cracking the whip - and aims to reduce the number of SOEs by half to 200 companies by 2020. Other firms for sale include technology giant FPT and insurer Bao Minh.

"After 20 years of covering this market, I am a little sceptical. But the new government has surprised by pushing several reforms, such as its anti-corruption drive and clean- up of state companies," says Mr Chris Freund, partner at Mekong Capital.

He adds that the "prospect of the government surprising on the upside is real".

To be sure, the Vietnamese economy faces numerous challenges. Among them is high public-sector debt, which is set to hit 64 per cent of GDP this year, far higher than its neighbours Malaysia (53 per cent) and Thailand (41 per cent).

Protracted delays in the corporate workouts of debts in bloated SOEs held by state banks and the potential derailments in much- needed international trade agreements, such as the Trans-Pacific Partnership, could also undermine economic expansion, economists warn.

Mr Dominic Scriven, chairman of Dragon Capital, one of Vietnam's most established investment funds, says the government's growing fiscal burden caused by persistent budget deficits has turned into a major driver of the privatisation programme.

This first wave of divestment - of a dozen companies including Habeco, Sabeco and Vinamilk - is estimated to raise US$7 billion and make a fair dent in the country's annual fiscal deficit budget of US$10 billion. It could also revive the country's two stock markets, which have yet to recover from a meltdown following the 2008 global financial crisis.

The benchmark VN-Index, which measures 314 stocks on the Ho Chi Minh Stock Exchange, hit its eight-year high of 668.89 points on Oct 19, on a market capitalisation that amounted to roughly 30 per cent of GDP, according to deputy head of research Thai Quang Trung at Maybank Kim Eng in Ho Chi Minh City.

That is a far cry from its peak of 1,167 points in late 2007, when the equity market accounted for roughly 43.7 per cent of GDP.

"This time, the plan is attracting greater cross-border interest, not least because Vietnam is better known and trusted," says Dragon Capital's Mr Scriven.

A version of this article appeared in the print edition of The Straits Times on November 23, 2016, with the headline 'Vietnam reboots privatisation push'. Subscribe