Thursday, July 27, 2006

By Frederik Balfour

Vietnam, Land of Milk and Money
A stock-market boom, IPOs, and expanding foreign capital have caught investors' eye. Their latest toast? A dairy outfit that doubled the bourse's valueOn a good day, the big bourses in New York, London, or Tokyo might jump by 1% or 2%. So imagine the excitement on Jan. 19, when the total value of the stock exchange in Ho Chin Minh City doubled to 16 trillion.

'That's right. Doubled. But before you dump your Google shares and pile into the market, read on. That 16 trillion dong, the local currency, equals just over $1 billion. Compare that to the $18 trillion value of all the shares on the New York Stock Exchange.
What's more, the jump was almost entirely due to the listing of one new stock: Vietnam Dairy Products Joint-Stock Company, or Vinamilk. The company on Jan. 19 made its much anticipated debut as the 34th enterprise to list on the Ho Chi Minh City Stock Trading Center. It's shares opened at $2.65, and by the closing bell had climbed to $3.34. That gave Vinamilk a valuation of roughly $531 million, or more than all the other companies on the exchange put together. Vinamilk's listing is nothing short of a milestone. Vietnam's stock market has been something of a joke for much of its five-and-a-half-year history. Trading on its first day in July, 2000, amounted to just $37,000, and it's been a slow grind since then. In 2005, the average daily volume was just $700,000. Worse, an unregulated curb market of shares in unlisted companies sees transactions worth several times what the official bourse handles on any given day. "We still have a way to go," says Dominic Scriven, a director of Dragon Capital, a Ho Chi Minh City-based fund management company with more than $350 million under management.
A company of Vinamilk's heft is just what the market needs to create more buzz. Vinamilk is widely regarded as one of Vietnam's best-managed companies, with earnings last year climbing 31%, to $38 million on sales of $356 million, up 50% from 2004. Despite competition from foreign rivals Formosa Milk and Dutch Lady, Vinamilk still has 75% of the market for milk products, yogurts, and fruit juices. And a week before its listing, the company announced plans to open a $45 million brewery with a capacity of more than 13 million gallons annually in conjunction with London-based SABMiller. The listing has created a lot of excitement about the market. Vinamilk "will undoubtedly attract larger foreign investors due to its size and liquidity," says Jonathon Waugh, director at PXP Vietnam Asset Management, which runs a Dublin-listed fund that invests in Vietnamese equities, including Vinamilk. "People have been ringing up saying, 'How do we get a piece of this?'"
More foreigners will be able to get a piece of Vinamilk and other Vietnamese companies now. While foreign ownership is capped at 30% for unlisted Vietnamese companies, a new law passed in October, 2005, to promote greater liquidity on the stock market allows for listed companies to sell up to 49% to non-Vietnamese investors. Prior to the listing, foreigners including Singapore-based drinks company Fraser & Neave and Dublin-listed Vietnam Enterprise Investment owned about 28% of Vinamilk. For those who miss out on Vinamilk, more big listings are in the pipeline. Ho Chi Minh City-based lenders Asia Commercial Bank and Sacombank together could add $600 million to market capitalization when they list later this year, Waugh estimates. Other candidates include the No.2 mobile-phone operator, Vinaphone, and Hanoi-based Vietcombank. Tran Dac Sinh, director of the exchange told Bloomberg news he expects the market size to reach $3 billion by yearend. Vietnam's booming economy might also draw the attention of foreign investors. Last year the country attracted $5.8 billion in foreign direct investment, as money poured into pharmaceuticals and shoe and mobile-phone manufacturing. Gross domestic product increased 8.5%, up from 7.8% in 2004. The economy is expected to grow 8% in 2005, to $60 billion. That's $720 per capita in this country of 84 million. "A BIG CHANGEOVER."
Much of that growth has come thanks to a surge in exports. Since a bilateral trade agreement with Washington took force at the end of 2001, exports of textiles, Nike shoes, and seafood have soared. Shipments to the U.S. have increased sixfold since the pact, to $6.5 billion last year. Private-equity and venture activity are picking up, too. Last year International Data Group launched a $100 million Vietnam fund, while another Dublin-listed outfit, Vietnam Opportunities Fund, now has a $171 million war chest after raising an additional $76 million in 2005. "There's been a big changeover in the past year," says Milton Lawson, a lawyer with Freshfields Bruckhaus Derringer in Ho Chi Minh City. "People are getting quite keen."


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