VietNamNet Bridge – Zero Hedge has released its ranking of the best 20 stock markets in the first quarter of the year, in which Vietnam ranks second. How will this affect the IPO (initial public offering) plan of Vietnam Airlines, the national flag air carrier?

According to Zero Hedge, Vietnam ranks second with its VN Index growth rate of 17.4 percent, just after the DFM index in Dubai which saw a sharp increase of 33.9 percent.

Analysts believe that the ranking is really good news for Vietnam Airlines, which is undergoing the equitization process and planning to undertake an IPO this year.

Vietnam Airlines’ CEO Pham Ngoc Minh has affirmed that “Vietnam Airlines is following the right track towards the IPO, slated for the second quarter of the year as requested by the Prime Minister”.

After the equitization, the State will continue to hold 70-75 percent of Vietnam Airlines’ stakes.

The air carrier hopes to receive information from the government about the enterprise’s valuation this month.

Minh told Bloomberg that Morgan Stanley and Citigroup, its two financial consultancy firms, have valuated Vietnam Airlines at $2.74 billion. The air carrier is considering selling a certain proportion of its shares to outside shareholders. It has also drafted the set of criteria based on which it will find strategic shareholders.

However, analysts have warned that Vietnam Airlines is likely to have difficulties in looking for strategic partners because of the government’s policy on equitizing the company incrementally.

“It is really a surprise to me that Vietnam Airlines is allowed to sell only 25 percent of its stakes,” said Le Dang Doanh, a prominent Vietnamese economist. “This modest percentage of shares would not be attractive to strategic shareholders,” he commented, adding that the state should only hold 51 percent of the shares.

“51 percent is enough,” he maintained.

Agreeing with Doanh, the director of a foreign investment fund in HCM City said the gradual equitization would be acceptable just as a first phase; however, it will not bring anything good if nothing new happens next.

Out of the six big airlines in South East Asia, only Vietnam Airlines is unlisted. At a recent meeting between the prime minister and enterprises, Vietnam Airlines announced a high profit of VND478 billion (about 22.5 million USD) in the first quarter, equal to 87 percent of all of 2013’s profits.

Nguyen Anh Tai, an experienced securities investor, noted that, in general, air carriers’ shares are not attractive in the eyes of investors, because airlines need much capital and make modest profits.

Tai said that if Vietnam Airlines is valued at $2.74 billion, and its post-tax profit in the first quarter of the year was only around $20 million, it would be difficult for the company to find strategic shareholders.

Analysts said that reducing the ratio of debt on equity to 3.14, and raising its rate of return on sales above the current one percent, are both goals that Vietnam Airlines needs to strive for this year.

However, the goal is believed to be attainable only if the air carrier can complete the equitization process and collect $200 million from its sale of 383 million shares.

NCDT