The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) has just closed the transaction with the well-known investor, creating a record in the history of Vietnamese banks. With the above transaction, the story of raising capital of state-owned commercial banks after equitisation has moved to a new page: after more than three years of proposing solutions and recommendations many times, the situation has step by step been solved.
Information announced earlier this week, the Board of directors of BIDV has officially approved the transaction with a foreign strategic investor. Accordingly, BIDV will issue private shares to its partner KEB Hana Bank (South Korea) 603,302,706 shares, equivalent to 15 percent of BIDV’s charter capital after the investment. The total value of the transaction is 20.295 trillion donga new record in Mergers &Acquisitions (M&A) of the Vietnamese commercial bank system.
Thus, after a long time of struggling, the bank with the largest total assets of the system have untied their growth limits. The charter capital has increased, and it is expected that BIDV will also have a large surplus. This resource with the new growth threshold hike are expected to make a difference soon.
BIDV is the second bank in the “big four” group of commercial banks with dominant state ownership, which has sold capital to foreign investors. On the contrary, Vietnam Bank for Agriculture and Rural Development (Agribank) depends entirely on new state-owned capital due to the lack of equitisation.
Previously, at the end of 2018, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) also sold a part of its capital to foreign investors and brought in a large surplus, improving its financial capacity. And this year, Vietcombank continues to carry out the above direction with about seven percent of additional sales.
Both BIDV and Vietcombank have a large room of mechanism to increase capital in terms of reducing the State ownership rate and increase the ownership rate of foreign investors. Meanwhile, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) reached the approved threshold. Moreover, the bank’s state shareholders in the medium term are not allowed to invest more according to the budget of the National Assembly, which has been planned for the past years, BIDV seemed to be struggling to raise capital.
On VnExpress on June 14, 2019, Nguyen Chi Thanh, general director of State Capital Investment Corporation (SCIC) said he was working on the ability to participate in acquiring BIDV and VietinBank shares. “SCIC has worked with SBV, Ministry of Finance and two state-owned banks including BIDV and Vietinbank on the investment plans. Currently SCIC’s proposal has been developed by these banks and submitted to higher levels for approval.”
Notably, according to Thanh, the plan proposed by the Corporation is to buy par value shares of two banks, helping them solve the lack of capital.
“SCIC recognises this as an appropriate investment opportunity. In the immediate future, this option will wait for approval from the competent authority. In case it is not approved to buy shares with par value, the two sides will continue to negotiate other investment plans,” said SCIC director general.
The information immediately caught in the market, with different perspectives from investors.
There may be points that have not been detailed to determine SCIC’s proposal, but the direction of buying shares of BIDV and VietinBank by par value is considered a “amateur plan”.
Because, while VietinBank’s CTG market price is at 2x, BIDV’s BID is 3x, but SCIC offers a plan to buy with par value.
The nature of “amateur plan” is also considered when VietinBank not only has state shareholders, but also small shareholders, and especially foreign shareholders. If the SCIC can purchase at the par value, what does the foreign investors think about this plan?
On the other hand, the market not only has SCIC as an investor to have the advantage of buying at a specific price.
An investment analyst sharing views on social networks recently said that if implementing the above plan, Vietnam would mark a step back in the process of equitisation.
In fact, as above, just over a month later, BIDV answered with record capital sales, in which the price of foreign investors paid more than three times of the face value.
With that answer, only VietinBank remains. This bank has reached all of the capital rate thresholds. It has proposed to retain profits by paying dividends by shares several times, which has not been implemented. However, the situation of VietinBank is not really tough in the operation, because the profit has not yet been divided and not yet included to increase the charter capital, the source of money is still in the bank.
Nevertheless, when the capital has not been increased, especially after more than three years, VietinBank’s requirements for market share expansion are somewhat limited by the regulations related to capital. Meanwhile, market share is increasingly fierce.
