Vietnam: Record high price for Saigon Beer shares makes their disposal unpredictable

Vietnam has picked a record high price for Saigon Beer’s share sale this month – at VND320,000 ($14) apiece – which has made it one of the most unpredictable share disposals, DealStreetAsia said on December 4.

The brewer, also known as Sabeco, will sell a 53.6 per cent stake on December 18, hoping to raise almost $5 billion for the state. This is the country’s biggest and most anticipated stake sale, nine years after Sabeco was privatised. The company currently enjoys a $9 billion valuation, making it Vietnam’s second largest listed company after Vinamilk.

The company went public late in 2016, and its rocketing stock price has become a debate since then. Sabeco’s shares have jumped 65% for the year to date, and market analysts are of the opinion that high prices are due the fact that only a limited number of its shares are currently available for trading.

After the government announced the starting price of VND320,000 for the public auction of Sabeco’s shares, the stock has continued to grow, and was at VND330,000 as of December 1.

While the increase in price is beneficial to individual and financial investors, many experts have asserted that it does not truly reflect the business.

The success of this divestment appears to be unpredictable because the price is 73 per cent higher than that suggested by advisors for the deal – besides, it has raised questions as to who would buy such a huge amount of shares.

“If the state really wants to open up Sabeco to private, overseas investors, it should have selected a more realistic price,” said an analyst who requested anonymity.

Sabeco is currently the most expensive stock on the local market. Its P/E ratio is around 45x compared to the average of industry peers at 22x. It is also more expensive than Vinamilk, Vietnam’s biggest listed business, which is traded at some 32x, according to Kevin Snowball, CEO of PXP Asset Management.

In a note last week, Bernstein’s Trevor Stirling reportedly pointed out that the high price that translates to an EBITDA multiple of 30-fold could “inhibit interest… from the more economically rational”.

“Unless a foreign acquirer can achieve effective majority control by partnering with a local investor, which could be tricky to structure, we expect synergies will be minimal,” Bernstein was quoted as stating by portal Just-Drinks. The portal also said that in comparison, Japan’s Asahi last year paid around 15x EBITDA multiple for SABMiller’s European brands Grolsch and Peroni.

Just last year, Vinamilk failed to sell the entire lot of its 9 per cent offer, seeing only Fraser & Neave purchasing 5.4 per cent. The failure was attributed to the tiny fraction of shares rather than an unrealistic price. Yet, it shows that past transactions have recorded undersubscribed sale.

This time, even as the 53.6 per cent stake of Sabeco is substantial, overseas investors will not be able to get a controlling interest in the brewer as foreign ownership limit is still capped at 49 per cent, and the government has said there are no immediate or future plans to raise this limit.

Currently, Vietnam’s Ministry of Industry and Trade owns 89.6% of the shares in the company. Even as it plans to sell 53.6% stake in the company, this implies that international investors can buy a maximum of 38.59% in Sabeco, as Heineken and other foreign players already hold around 9%.

Meanwhile, potential buyers for this deal are deep-pocketed strategic investors who want to solidify their presence in the industry.

However, some are believers of a successful auction, which will attract aggressive investors who would accept any price to acquire a meaningful stake at Sabeco, given the market perspective of over 90 million population with increasing consumption, and a dominant market share owned by the firm.

The biggest Vietnamese brewer currently has more than 40 per cent market share, followed by Heineken (28 per cent), which is also Sabeco’s 5 per cent shareholder.

Filipino beverage firm San Miguel has said that it would join the Sabeco auction, according to a Reuters said. In addition to the existing shareholder Heineken, several other prospective bidders include Belgium’s AB InBev and Japan’s Asahi and Kirin are also reportedly interested in the deal.

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