The International Finance Corporation (IFC) had just announced to have sold more than 57.37 million CTG shares of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) under the agreement method. It was estimated that the proceeds from this divestment were over 1.2 trillion dong.
The group of foreign investors related to IFC organisation under the World Bank (WB), including IFC and IFC LP Investment Fund, had just announced that they had completed selling 57.37 million CTG shares of VietinBank.
The transaction was made by the agreement method on November 13.
The selling price was estimated at 21,500 dong per share, meaning that IFC earned over 1.2 trillion dong from this divestment.
After the transaction, IFC’s ownership in VietinBank decreased from 8,027 percent to 6,486%, equivalent to 241.5 million CTG shares.
Earlier, in September 2018, Bloomberg reported that IFC had worked with a consultant on the possibility of selling more than eight percent of its stake in VietinBank.
IFC had invested in VietinBank since March 2011, owning 168 million shares with an initial purchase price of 21,000 dong per share. By November of the same year, the organisation continued to buy nearly 34 million more shares, increasing its ownership to 202 million shares.
After the bonus and stock dividend payment in 2012, along with the additional share purchase in 2013, IFC increased its ownership to nearly 299 million shares, before divesting a stake in November 2019.
IFC spent nearly 4,25 trillion dong to own almost 299 million CTG shares, equivalent to the average cost price of about 14,200 dong per share.
When calculated at this price, in the last divestment, IFC had a surplus of about 420 billion dong.
From 2012 through 2016, VietinBank continuously received cash dividends, earning a total of more than 1.4 trillion dong. However, dividends in 2017 and 2018 were missed because VietinBank needed to retain profits to expand the limit for credit growth. At that time, the capital adequacy ratio (CAR) was regularly kept to a minimum and cannot be improved by raising capital via private placement as the state ownership ratio was already at least 65%.
Also, the prospect of CTG’s price increase was unclear in the context that VietinBank’s profit prospects were not very bright.
The first reason to mention was that the bank’s CAR had reached the minimum threshold. Even if applied under Circular 41 (Basel II standard on capital), CAR of VietinBank would even fall below the minimum threshold, according to Chair Le Duc Tho at the annual general meeting of shareholders in 2019.
Low CAR made credit growth limited because credit balance was the denominator when calculating CAR.
There was currently no solution to this problem.
Besides using external capital, it was also feasible to supplement money through keeping profits. However, VietinBank faced difficulty because low CAR had limited credit growth, while credit was the primary source of income for the bank, leading to limited profit growth.
Also, since taking the position of Chair of the Board of directors, Le Duc Tho had decided to clean up the balance sheet when fully recording bad debts as well as withdrawing accrued interest, causing a loss in Q4/2018 of more than 850 billion, while the same period last year the profit was nearly 2 trillion dong. That also affected the amount of retained earnings, but was a must.
In the coming time, VietinBank would likely continue to make strong provisions to deal with bad debts, prepare for 2021 when the path of increasing capital was wider. Due to the ‘Vietnam Banking Industry Development Strategy to 2025, orientation to 2030′, from 2021 to 2025, the minimum state ownership ratio at state-owned commercial banks would be 51%, instead of 65 percent as currently.
Returning to IFC’s divestment, the missed appointment of dividends and the prospect of uncertain stock price increase had specific effects on the likelihood of IFC’s return on investment in VietinBank. Therefore, from an investment perspective, IFC’s divestment was not too difficult to understand.
In another perspective, the IFC divestment had increased VietinBank’s foreign ownership cap threshold more than 28.4 million units. That reminded investors of the past capital raising deal of Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) by buying shares from HSBC Private International Bank (HSBC) and selling them to other investors at much higher prices than the one obtained from HSBC. However, to create a significant surplus, there were two tough points that the volume of shares to buy must be enormous and the selling price must be much higher than the purchased one.
