These 6 Foreign Companies Are The Biggest Shareholders In Indonesia’s Banks

Foreign institutions are attracted to Indonesian banks

Indonesia’s (EIDO) crowded banking market has remained attractive for foreign financial institutions in the past and many of them have acquired controlling stakes in local lenders. Most of these investors are financial institutions based in Asian countries like South Korea, Japan and China. Some are Middle Eastern firms such as the Qatar National Bank that are interested in picking up stakes in Islamic banks internationally.

Recent acquisitions of local banks by these foreign institutions are driving consolidation in the Indonesian banking sector. The Financial Services Authority of Indonesia, OJK, had previously encouraged mergers of small banks or acquisitions by foreign institutions for these lenders to meet the minimum capital requirement set forth.

However, rapid economic growth in Indonesia coupled with an under developed and fragmented banking sector attracted foreign lenders from Asia to the country in droves. The country’s central bank then imposed a 40% single ownership cap in 2012, discouraging large foreign investments in the country’s baking sector.

With an economic growth target of more than 5.3% for 2018, the Indonesian banking sector offers high growth potential to investors. The country’s banks are more lucrative compared to other Southeast Asian markets. Banks in the Indonesian market generated average return on assets (ROA) of 2.5% higher than other South East Asian nations.

Largest foreign shareholders in Indonesian banks

1)    China Construction Bank

China Construction Bank holds 60% of stake in Bank Windu that it acquired in 2016. Post the acquisition; Bank Windu was renamed to PT Bank China Construction Bank Corporation Indonesia.

China Construction bank is among the largest banks in China and among the top five in the world by market cap. The company entered Indonesia to strengthen its presence in South East Asia and expand its global business.

Bank Windu operates a network of 82 branches in Indonesia. In 2016, the bank had $905 million in assets and net interest margins of 4.9%.

China Construction Bank trades on HongKong and Shanghai stock exchanges with tickers 0939.HK and 601939.SS . Bank Windu trades as PT Bank China Construction Bank Indonesia Tbk on the Jakarta Stock Exchange with ticker MCOR.JK.

2)    Temasek

Temasek, Singapore’s government investment firm, is one of the biggest institutional investors in the world. The company owns 68% in Indonesia’s fifth largest bank PT Bank Danamon that it acquired in 2003. The company is in talks with Japan based Mitsubishi UFJ Financial Group to sell 40% of its stake for around ($1.8 billion) 200 billion yen.

The firm, through its subsidiary Sorak Financial, held a 55% stake in PT Bank Internasional Indonesia (BII) which it sold to Maybank in 2008.

Temasek had also attempted to acquire a stake in PT Bank Permata in 2004.

3)    Maybank

Malaysia’s largest financial institution, Malayan Banking Bhd, holds a controlling stake in Bank Internasional Indonesia (BII) that it bought from Temasek and South Korea’s Kookmin Bank in 2008 for $1.5 billion. The company owns nearly 97% of Indonesia’s sixth biggest lender.

Maybank trades on Kuala Lumpur and Munich stock exchanges with tickers 1155.KL and MYB.MU. The company’s shares also trade on OTC Markets with the tickers MLYBY and MLYNF. Bank Internasional Indonesia (BII) trades as PT Bank Maybank Indonesia Tbk on the Jakarta Stock Exchange with ticker BNII.JK.

4)    MUFG

Mitsubishi UFJ Financial Group, a subsidiary of Bank of Tokyo-Mitsubishi UFJ, has proposed to buy a 40% stake in Bank Danamon Indonesia from Temasek for $1.8 billion (200 billion yen). As per Reuters sources, MUFG would begin investing in Bank Danamon starting April 2018.

MUFG has been expanding its presence in South East Asia as it faces sluggish growth in its home market. The company also holds stakes in Vietnam’s Vientinbank, Thailand’s Bank of Ayudhya (BAY.BK) and Security Bank Corp (SECB.PS) of the Philippines. The company generated 31% of its operating profits from its global banking business in 2016.

MUFG trades on New York and Munich stock exchanges with tickers MTU and MFZ.F. The company’s shares also trade on OTC Markets with the ticker MBFJF. Bank Danamon trades as PT Bank Danamon Indonesia Tbkon the Jakarta and Frankfurt Stock Exchange with tickers BDMN.JK and HX9.F.

5)    Cathay Financial

Taiwan’s largest financial holdings company Cathay Financial holds 40% in Bank Mayapada Internasional Tbk PT that it bought for $278 million in 2016. Bank Mayapada is the fifteenth largest Indonesian bank by assets.

The acquisition of Bank Mayapada is part of Cathay Financial’s strategy to expand its presence out of Taiwan’s overcrowded banking market.

Cathay Financial trades on Taiwan and London stock exchanges with tickers 2882.TW and CFHS.IL. The company’s shares also trade on OTC Markets with the tickers CHYFF and CHYYY. Bank Mayapada trades as PT Bank Mayapada Internasional Tbk on the Jakarta Stock Exchange with ticker MAYA.JK.

6)    Shinhan Bank

South Korea based Shinhan Bank owns 98% stake in Bank Metro Express and 75% stake in Indonesia’s Centratama Nasional Bank . The company bought these stakes in 2016 and 2015 respectively as part of its push to expand into Southeast Asia. Shinhan Bank is part of Shinhan Financial Group. Post the acquisition, Bank Metro Express was renamed to Bank Shinhan Indonesia.

Currently, Shinhan Bank trades under the parent company Shinhan Financial Group on the South Korean, Frankufrt, Johannesburg and Mexican Stock Exchanges with tickers 055550.KS, KSF1.F, SHG and SHGN.MX respectively.

These 4 Chinese Fintech Stocks Are Tanking After New Regulatory Crackdown On Online Lending

The Troubled Ones

With China (FXI)(MCHI) tightening its regulations, shares of some listed fintech companies are suddenly under fire. As a result, a handful of the country’s largest fintech startups are also eyeing initial public offerings (IPOS) overseas. The country’s regulators have now stopped all approvals for online lending companies in an effort to tighten controls around Internet finance.

New regulations by the Chinese government direct local governments to halt approval of licenses to companies that provide online lending services, as well as forbidding these lenders to operate outside the province where they are registered. In the past, online lenders have faced scrutiny for providing loans without adequate due diligence, further burdening China’s bad debt issues. Most of these lenders charge high rates of interest. Even though existing companies will continue to operate, they will likely be subject to heavy regulations. “[Regulators] are very scared that a lot of these firms have very little internal control and serious oversight as to who they are lending money,” said Christopher Balding, a professor at Peking University’s HSBC Business School.

In the recent years, fintech companies that provide online lending and investment products have mushroomed in China, pushing the need for stricter regulations in this space. According to government sources, there are currently nearly 2,700 online lenders in China that service nearly 10 million customers. The country does not have a standard credit rating system currently, making it difficult for small borrowers to get access to loans. This has led to the fast growth of online lenders and also the need for tighter scrutiny after cases of fraud.

However, these regulations sparked a sell-off in shares of these fintechs, including several that have recently listed in New York.

Stocks affected

In the past few years, investors have shown a large appetite for fintech companies as they have gained hefty valuations in listings in New York and Hong Kong. The announcement regarding stricter regulations and curbs on new licenses sparked a sharp fall in Chinese listed fintechs.

Companies including Zhongan (6060.HK), Qudian (QD), Ppdai (PPDF) and Jianpu Technology (JT) have listed their shares in the past few months. Further, Chinese companies like Xiangyuan Culture Group, a Shanghai-listed entertainment and leisure company, and Renhe Pharmacy Group, a Shenzhen-listed firm have also laid out plans to spin off their micro lending units.

Shares of online insurer ZhongAn, that listed in September in Hong Kong dropped nearly 4%. The company’s shares have returned 17% since its $1.8 billion IPO. This was also Asia’s largest Fintech IPO in 2017. 

Comparatively, New York-listed shares of Alibaba (BABA) backed Chinese online microlender Qudian tumbled nearly 16% on November 22. The company’s shares have returned -33% since its IPO. The company raised $900 million in October in one of the largest Chinese IPOs in the United States in 2017 so far.

Meanwhile, shares of fintech companies Ppdai Group and Jianpu Technology that listed this month tanked 24% and 13% following the news.

Ppdai Group is an online microlender that raised $221 million in a public issue earlier in November on the NASDAQ exchange.

Jianpu Technology raised $190 million by listing 22.5 million ADRs on November 16. The company operates an open source platform for financial products in China.

IPO Update: China’s Second Largest Mobile Search Engine Is Now Listed In New York

Sogou’s IPO debuts in New York

China’s second largest mobile search engine, Sogou recently listed its ADR on the New York Stock Exchange under the ticker SOGO. The company offered 45 million shares raising $585 million from the IPO. The IPO priced at $13, at the top end of the price range of $11 to $13, valuing the company at $5 billion. J.P. Morgan, Credit Suisse, Goldman Sachs (Asia) and CICC acted as lead managers on the deal.

Chinese IPOs have been largely unsuccessful in garnering investor interest in international listings, but analysts expect Sogou to turn the tide.

Shares of the company had a relatively uneventful day of trade at debut (as on November 9) with the stock closing at $13.85 after a 4% increase in value mid-day. In the following days of trade (as on November 21) shares of Sogou have gained 5.4%. Subsequently, its market cap has increased to $5.4 billion.

Sogou, founded in 2005 by China’s leading internet firm currently runs China’s second largest mobile search engine, competing with Baidu and Alibaba owned UCWeb. Sogou’s search engine commands 6.6% market share in China, according to research firm Analysys. Worldwide leaders Facebook, Google and Twitter are banned in China.

In 2016, Sogou reported revenues of $660 million and $591 million in 2015. In the first nine months of 2017, the company has earned revenues of $630 million. In 2016, the company earned $56 million in profit, down from $99.5 million in 2015. The company derives its revenues primarily from advertising.

The company in its IPO prospectus expects the Chinese search engine market to grow to $30.7 billion by 2010, from $11.5 billion in 2016.

Growing AI ambitions?

The IPO of Sogou has put it in a favorable position to pursue ambitions in growing its artificial intelligence business inorganically through acquisitions of startups. CEO Wang Xiaochuan said in an interview, “this IPO has opened a window for our globalization.” He continued, “Globally, we will look at M&A and partnerships with companies who have the technology to improve our AI.”

Sogou’s ambitions are driven by a policy push by the Chinese government to become the world leader in AI by 2030. Tencent holdings, Sogou’s largest shareholder have also been pursuing global ambitions to grow its AI capabilities. The company has invested $2 billion in Snap (SNAP) as part of this strategy.

5 Indian Companies Set To Gain Most From Moody’s Rating Upgrade

Moody’s upgrades India

Global Credit Rating agency Moody’s upgraded India’s sovereign credit rating by one notch from Baa3, the lowest investment grade rating to Baa2 on November 17. Moody’s also changed its outlook on the country from stable to positive, sending out an optimistic note to foreign investors interested in the country. Further, the agency also upgraded India’s local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. 

Following the announcement, Indian stock markets rallied and the currency appreciated. The benchmark Nifty Index gained 0.7% while the Bank Nifty hit record highs after a 1.1% surge. The rupee appreciated 0.9%. It also sent bond yields lower as a rating upgrade means further confidence in the government’s ability to service its debt obligations, thereby warranting low risks on sovereign bonds. Additionally, it also leads to a lower cost of borrowing for the government as well as Indian companies seeking funds from abroad at a time when interest rates in the domestic market remain high.

Companies to gain most

Export-oriented companies that need dollar-denominated debt stand to benefit most, as a higher credit rating would lead to favorable risk profile thereby lowering their cost of borrowings. Moody’s also upgraded long-term credit ratings of Export-Import Bank of India, HDFC Bank, Indian Railway Finance Corporation Limited (IRFC), SBI, BPCL, HPCL, Indian Oil , and Petronet LNG from Baa3 to Baa2.

Aashish Kamat of UBS India expects large-cap stocks like HDFC (HDB) and Reliance Industries and public sector banks like State Bank of India and Bank of Baroda to be the top beneficiaries from Moody’s rating upgrade. In a note to investors he stated, “There could be a direct 20 basis points to 50 basis points lowering in the overseas rate of borrowing for these companies.” In 2017 till date, these stocks have returned 52.3%, 69.7%, 36.1% and 20% respectively.

Kaku Nakhate, India country head, Bank of America believes the upgrade will give public sector enterprises, and banks a significant advantage to operate with lower interest rates. Further, it will also enable to the Indian government to borrow at cheaper interest rates to put their infrastructure related projects into action.

Ashish Vaidya, head of markets for India at DBS Bank expects Moody’s upgrade to drive flows to India’s bond markets. “A new set of investors may start participating in their bond sales particular after the rating upgrade,” he said.

“Top-rated Indian companies will be able to take advantage of the rating upgrade. These companies are likely to see marginal cost benefits when they will raise money from overseas markets.”

The biggest Indian companies by market cap are Reliance Industries, Tata Consultancy Services, HDFC Bank, ITC Limited and State Bank of India. These stocks have market caps of $91 billion, $79.8 billion, $72.7 billion, $48.4 billion and $44.9 billion respectively. In 2017 so far, these stocks have gained 69.7%, 16.7%, 52.3%, 8.4% and 36.1%.

ETFs offering exposure to India

Year to date, the MSCI India Index has surged 24.5% while the Indian benchmark Nifty 50 Index has gained 26%, outperforming most emerging markets.

Foreign investors seeking exposure in India could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Indian companies.

Investors looking to make the most of the India growth wave through ETFs can consider the iShares MSCI India ETF (INDA), iShares India 50 ETF (INDY) and the PowerShares India Portfolio (PIN). YTD, these ETFs have returned 30.2%, 31.4%, and 30.7% respectively.



It’s Blue Skies for the 5 Largest Emerging Market Aluminum Producers as China Cuts Output

Blue skies for aluminum producers

In line with its blue skies program, China (FXI) passed an “Air Pollution Control” regulation earlier this year which required aluminum producers in the four provinces around Beijing to cut aluminum output. The move is targeted towards reducing pollution and stabilizing the market. Smelters and aluminum refineries were mandated to implement cuts of at least 30%. Accordingly, the Asian (AAXJ) (VPL) country is estimated to cut around 3-4 million tonnes of aluminum capacity by the end of 2017. Since China is the world leader in aluminum production (chart below), the move is impacting market dynamics and prices for this base metal.

The price of aluminum has been treading north

Meanwhile, the price of aluminum is already treading north (see chart below) and is likely to continue, at least over the medium term.

This is bad news for the automotive sector being that they are one of the key drivers of global aluminum demand. Most equipment manufacturers and auto body producers are located in developed markets (EFA) (VEA). So, while auto parts makers stand to face dark clouds, aluminium producers have blue skies, as they benefit from the rise in the price of their product.

The largest aluminium producers in the emerging markets

Here’s a list of the five largest aluminum producers located in emerging markets (EEM) (VWO):

  1. UC Rusal (Russia)
  2. China Hongqiao Group Ltd. (China)
  3. Aluminium Corp. of China (China)
  4. China Power Investment Corp. (China)
  5. Shandong Xinfa Aluminium & Electricity Group Ltd. (China)

United Company RUSAL (RUSAL.PA), Up 33% YTD

The world’s largest primary aluminum producer based out of Russia (RSX), UC Rusal, produced a total of 3.7 million tonnes of aluminum in 2016. The company was formed by the merger of RUSAL, SUAL, and the alumina assets of Glencore (GLNCY) in March 2007. Currently, it accounts for almost 9% of the world’s primary aluminum output and 9% of the world’s alumina production.

The company’s GDR currently trades at the Euronext Paris Exchange under the ticker RUSAL. The GDR is up 33.2% on a YTD basis and commands a market cap over $9 billion (as of November 20). In the FY2016, the company reported an ROA (return on assets) of 8.65% and an EBITDA margin of 19.05%. The company’s revenue sources are spread across Asian and European countries with the Netherlands accounting for 28.6%, followed by Russia at 19.7%. 82.2% of the company’s long-term assets are located in Russia.

China Hongqiao Group Ltd. (1378.HK), Up 39% YTD

The Shandong province-based China Hongqiao Group Ltd. is one of the largest (as of 2016) and lowest-cost aluminum producers in the world with a combined annual capacity of 3.61 million tonnes.

The company’s stock currently trades at the Hong Kong Stock Exchange under the ticker 1378. The stock is up 39.3% on a YTD basis and commands a market cap of about $69 billion (as of November 20). The stock currently trades at a P/E of 11.54. Estimated forward P/E for the stock stands at 8.13. In the FY2016, the company reported an ROA (return on assets) of 3.6% and an EBITDA margin of 30.1%. The company’s revenue sources and long-term assets are concentrated in China. The stock has 50% BUY recommendations and 50% HOLD recommendations from the 6 analysts that reviewed the stock.

Aluminum Corp. of China (ACH) (2600.HK), Up 58% YTD

China’s state-backed producer Aluminum Corporation of China Limited (aka Chalco) used to be the largest refined metal maker in China until China Hongqiao Group overtook it in 2015. Chalco produces about 3.31 million tonnes of aluminum annually.

The NYSE-listed ADR of the company trades under the ticker of ACH and commands a market cap of $12.9 billion. The company’s stock also trades at the Hong Kong Stock Exchange under the ticker 2600. The stock is up 58.44% YTD and commands a market cap of $98.2 billion (as of November 20). The stock currently trades at a P/E of 58.9. Estimated forward P/E for the stock stands at 25.5. In the FY2016, the company reported an ROA (return on assets) of 0.21% and an EBITDA margin of 8.9%. The company’s revenue sources and long-term assets are majorly concentrated in China. The stock has 53.3% BUY recommendations, 33.3% HOLD recommendations, and 13.3% SELL recommendations from the 15 analysts that reviewed the stock.

China Power Investment Corp.

China Power Investment Corporation (CPI) is one of the five largest gencos (generation companies) in China and a comprehensive energy group integrating industries of power, coal, aluminum, railway, and port. The company has an alumina refinery capacity of 2.6 million tonnes. The company’s stock is not listed on any exchange. In July 2015, the company was merged with the State Nuclear Power Technology Corporation (SNPTC) to form State Power Investment Corporation (SPIC).

Shandong Xinfa Aluminium & Electricity Group Ltd.

Shandong Xinfa is another privately held large-scale enterprise group in China. The company has an aluminum production capacity of about 1.63 million tonnes.

While above is a list of the largest aluminum producers based out of the emerging markets, UK’s Rio Tinto (RIO) and US’s Alcoa (AA) count among the notable developed market (EFA) (VEA) based producers of aluminum.

The Nine Stocks Which Have Led the Nosedive in the Dubai Financial Market

The Dubai Financial Market General Index continues to deflate. Since the 3,665 level seen on October 25, the index has declined 6.8% until November 20.

Driving the decline are stocks from the consumer staples & discretionary and real estate & construction sectors among the nine classified by the exchange. Between the aforementioned dates, these sectors have dived 15% and 11% respectively. Telecommunication is a distant third, down by 6.5%.

There following are the nine stocks which have led this significant drop, each of which have fallen in double digits over the aforementioned period.

Arabtec Holding: All securities comprising the real estate & construction sector have declined between October 25 and November 20, led by Arabtec Holding PJSC. The company operates in the housing and commercial construction space and also provides infrastructure services. Its geographic expanse spans the United Arab Emirates, Middle East, and North Africa.

Its stock has been the largest decliner on the Dubai Financial Market for the period outlined above. Down by 18.1%, the stock leads the four companies from the real estate & construction sector on this list.

Drake & Scull International: The stock with the second-biggest decline on the list is also from the real estate & construction sector. Shares of Drake & Scull International PJSC are the most heavily traded on the Dubai Financial Market.

The company, which operates in the construction space in the Middle East, Europe, Asia, and North Africa, has seen its shares decline by 16% from October 25 to November 20.

DXB Entertainments: Earlier known as Dubai Parks and Resorts PJSC, DXB Entertainments PJSC functions in the leisure and entertainment segment in the United Arab Emirates. Its offerings include theme parks, hotels and dining experiences.

The stock forms part of the consumer staples & discretionary sector according to the categorization by Dubai Financial Market and is by the far the biggest decliner from the sector, down 15.7% in less than a month.

DAMAC Properties Dubai Co.: The third entrant from the real estate & construction sector and fourth overall is luxury real-estate developer DAMAC Properties Dubai Co. PJSC.

The company which develops high-end residential, commercial, and for leisure properties has seen its stock plummet by 15.3% from October 25 until November 20.

Al-Madina For Finance & Investment Company: The Shariah-compliant private equity firm is engaged in direct investments, fund management, and financial services among other businesses. It is the only entrant from the investment and financial services sector in the list and has fallen by 12.5% from October 25 until November 20.

AAN Digital Service Holding Co: Similar to Al-Madina, AAN Digital Service Holding Co is the sole entrant in this list from the telecommunication sector. With a decline of 12.4% over the aforementioned period, the company’s stock has emerged as the sixth largest decliner.

Dar Al Takaful: At the seventh position is the only entrant from the insurance sector – Dar Al Takaful PJSC. The firm which offers a wide range of insurance and reinsurance products in accordance with Shariah law has seen its share prices decline by 12% from October 25 until November 20.

Union Properties: Rounding-off the four companies from the real estate & construction sector is Union Properties PJSC. The company offers real estate property investment, development, and management. Over the aforementioned period, its stock has been down 10.8%.

Emirates Investment Bank: At the bottom of our list is Emirates Investment Bank PJSC which offers investment and private banking services including portfolio and wealth management. Its stock, down 10% from October 25 until November 20, leads decliners from the banking sector as categorized by Dubai Financial Market.

Stocks of National Central Cooling Company PJSC (Tabreed) from the services sector, down 9.9%, and Dubai Islamic Insurance & Reinsurance Company (AMAN) from the insurance sector, down 9.8%, narrowly missed the list of double-digit decliners.

These Philippine Stocks Have Been Humming Since the Friendly Exchange Between Trump and Duterte

It was in October 2016 on a visit to Beijing that Philippine President Rodrigo Duterte  announced his country’s pivot away from the US and towards China. This created ripples across the geopolitical fabric in the region spreading all the way to Uncle Sam’s doorstep.

Philippine stocks were negatively affected, and the 70-year friendship between the two countries seemed to be heading for severe weather.

However, as the graph below shows, after declining until the penultimate week of 2016, the two main indices of the Philippine Stock Exchange (PSE) recovered and have had a good 2017 so far.

Net inflows to the sole ETF dedicatedly investing in Philippine stocks and traded on US exchanges – the iShares MSCI Philippines ETF (EPHE) – show a similar trend.

From the last week of October 2016 until November 2017, the $177 million ETF has seen net outflows of nearly $36 million according to Bloomberg data, owing primarily to the sharp outflows witnessed last year after Duterte’s comments. In YTD 2017, the fund has seen net inflows worth $12.2 million.

Will the friendly tone keep foreign money flowing?

The EPHE has returned 13.8% in this year so far, primarily due to financials (Ayala Corporation (AYALY), BDO Unibank (BDOUY)), real estate (Ayala Land (AYAAF), SM Prime Holdings (SPHXF)), and industrials (SM Investments Corporation (SMIVY)) sectors.

As far as the domestic markets are concerned, overseas investors have continued to buy Philippines stocks even after the announcement of a pivot away from the US as shown in the graph below.

Recently, during a visit to the island nation, US President Donald Trump termed the relationship between him and President Duterte as “great” while his counterpart sang a popular Filipino song.

Though amidst the camaraderie, broader Philippines stock indices did not hum the same tune, there were specific stocks which did quite well.

While the PSEi is comprised of 30 stocks, the broader PSE All Share Index is made up of 274 stocks.

At the end of trade on November 13 (the day that Trump and Duterte intially met), only three stocks forming the PSEi were in the black:

  • LT Group Inc
  • Manila Electric Company (MAEOY); and
  • Jollibee Foods Corporation (JBFCY)

These stocks remained in the top three in terms of returns between November 10 and 14, though LT Group and MAEOY exchanged positions. These stocks had gained 3.8% and 8.4% respectively in the two trading sessions. Meanwhile, Alliance Global Group, Inc. (ALGGY) and Bank of the Philippine Islands (BPHLF) also joined the group of rising stocks.

Meanwhile, on the broader PSE All Share Index, the following stocks have been the top gainers from the end of trading on November 10 until November 14 with the percentage change in their prices given in parentheses:

  • NOW Corporation – Information Technology (12.8%)
  • Manila Electric Company (MAEOY) – Utilities (8.4%)
  • Oriental Petroleum and Minerals Corporation (OPTBF) – Energy (7.7%)
  • Boulevard Holdings – Consumer Discretionary (7.5%)
  • Philippine Realty & Holdings Corp – Real Estate (7.2%)

The reason that these stocks have failed to boost the broad indices even after strong returns is that except for Jollibee Foods in the PSEi and Manila Electric in the All Share Index, the other gainers form a negligibly small portion of their respective indices, thus significantly reducing their impact on the broader stock market.

Given the fact that overseas investors have steadily increased their holdings of Philippine stocks even when relations with the US had become tense, the friendly tune being hummed by the two nations now could have a positive impact on equities of the island country.

The 5 Biggest IPOs Ever Launched In The GCC: Where Are They Now?

After only 3 public issuances in the entire 2016 calendar year, GCC region IPOs appear to be picking back up. Local companies raised $700 million amongst 13 initial public offerings (IPOs) during the first-half of 2017, according to consultancy firm EY.

The UAE and Saudi Arabia are set to be the biggest contributors going forward with a number of announced and rumored IPOs that could be on the books for the coming year including Adnoc, Abu Dhabi Ports, Emirates Global, Aramco, Sanaat, and Gems Education.

These two countries have traditionally always been in the driver’s seat when discussing GCC region IPOs. With governments now coming around to the idea of raising capital through the privatization of state-owned assets, the upcoming listings could be exceptionally large compared to historical averages.

This makes it an interesting time to take a look back at some of the GCC region’s biggest IPOs and how they have performed since.

Performance of GCC’s largest IPOs

The five largest GCC IPOs (GULF) by deal size are National Commercial Bank, DP World, Saudi Telecom, Alinma Bank and Saudi Arabia Mining Co. The IPOs of these companies generated investments of $6 billion, $4.9 billion, $4.1 billion, $2.8 billion, and $2.5 billion respectively through their public offers.

Shares of these companies have returned 21%, -15%, 178%, and 81% and 188% since their respective public issues.

National Commercial Bank

National Commercial Bank, Saudi Arabia’s largest bank, raised nearly $6 billion in an IPO in 2014. Shares of the company were listed on the Saudi Arabian Tadawul Stock Exchange making it the largest IPO in the world after Alibaba in 2014 and the largest ever from the GCC region. The IPO was heavily oversubscribed as retail investors applied for 23 times more shares than the bank offered for sale.  GIB Capital and HSBC Saudi Arabia were lead managers and financial advisors for the public issue.

National Commercial Bank offered 500 million shares through the IPO, nearly 25% of its capital. Investment in the NCB IPO was restricted to Saudi Arabian citizens only. The 15% retail tranche, available to Saudi citizens, consisted of 300 million shares, while 10% was allocated to the kingdom’s Public Pension Agency. The stock was priced at 45 riyals ($12) and gained 13% on the first day of trade.

National Commercial Bank trades with the stock ticker 1180.SR on the Tadawul stock exchange. Shares of the company gained 13% within five days of trading after its initial listing, but dropped 6% over the next 12 months. NCB has a market cap of $28 billion, and the company’s stock has gained 21% since its public listing on the Tadawul Stock Exchange in November 2014. YTD in 2017, shares of NCB are up 25%.

At a price-to-book ratio of 2.0x, NCB trades at a discount to Saudi Arabia’s broader banking sector.

DP World

Dubai-based DP World, the fourth largest port operator globally, raised $5 billion in an IPO in 2007. DP World has operations around the world, but its biggest facility remains the port of Jebel Ali, in Dubai, one of the world’s top 10 container ports.

The company was the first to list exclusively on the Dubai International Financial Exchange. The IPO was 15 times oversubscribed as investors offered $80 billion for the shares on offer. As a result, during the final allocation DP World issued 498 million extra shares on the back of high demand. The company issued 3.8 billion shares in total, representing 23% of the company’s capital. Shares of the company were priced at $1.30, which fell in the higher band of the $1-$1.30 range announced by the company. Following the initial public offering, DP World was valued at $21.6 billion. Currently, the firm has a market cap of $19.3 billion.

DP World trades on the Dubai and Frankfurt stock exchanges with tickers DPW.DU and 3DW.F Shares of the company were delisted from the London Stock Exchange in 2015.DP World’s stock price has declined 16% since its public listing in April 2007. YTD, shares of DP World are up 30%.

Saudi Telecom

Saudi Telecom, the largest telecom company in Saudi Arabia, sold 30% of its equity in an IPO in 2002 raising nearly $4.1 billion. The public offering was heavily oversubscribed with investor applications worth nearly $10 billion, 2.5 times the number of shares offered. The company sold 90 million shares at 170 riyals, of which 60 million were reserved for Saudi citizens, with the remainder being allocated to two public pension funds.

Saudi Telecom trades on the Tadawul stock exchange with the ticker 7010.SR. Shares of the company have nearly doubled since its public listing in December 2002. YTD, shares of Saudi Telecom have declined 0.8% and trade at a PE ratio of 15.7x. Sell-side analysts are bullish on Saudi Telecom and have assigned 2 buy ratings, 1 sell ratings and 14 hold ratings.

Alinma Bank

Saudi Arabia-based Alinma Bank’s shares were issued to the public in 2007 after several delays. The bank’s IPO raised proceeds of $2.8 billion (10.6 billion riyals) from 5.4 million subscribers. The company offered 70% of its capital through 1.05 billion shares at an offer price of 10 riyals each. The issue was oversubscribed as investors offered $4.9 billion (18.3 billion riyals) 74% more than the value of shares on offer.

As with other Saudi Arabian IPOs, the offer was only open to Saudi nationals for which 70% of the shares were reserved. The remaining 30% were shared equally between The Public Investment Fund and two state pension funds — the General Organisation for Social Insurance (GOSI) and the Public Pension Agency.

Alinma Bank, formed in 2006 was yet to formally begin business activities when its IPO was announced. The bank began operations in 2008 with 15 branches, and today operates 77 branches across the country.

Alinma Bank trades on the Tadawul stock exchange with ticker 1150.SR. Shares of the company have gained 81% in value since its public listing in July 2007. YTD, shares of Alinma Bank have rallied 18.4% and trade at a price-to-book ratio of 1.4x. Sell-side analysts are bullish on Alinma Bank and have assigned 3 buy ratings, 4 sell ratings and 6 hold ratings.

Saudi Arabian Mining Co

Saudi Arabian Mining Co, commonly known as Ma’aden, raised nearly $2.5 billion (9.3 billion riyals) in an IPO in July 2008. Shares of the company were listed on the Saudi Arabian Tadawul Stock Exchange at 20 riyals per share. Following the IPO, the firm was valued at $4.9 billion and currently its value has increased 400% to $16.4 billion.

The IPO was oversubscribed as retail investors applied for 2 times more shares than the bank offered for sale. JPMorgan was the sole book runner while Samba Financial Capital was the lead manager for the public issue.

Saudi Arabian Mining Co offered 462.5 million shares through the IPO, nearly 50% of its capital. The stock was priced at 20 riyals and gained 5% on the first day of trading.

Proceeds from the IPO were used to cover costs related to the company’s projects, namely a 740,000 tonne aluminum smelter with Rio Tinto and a 3 million tonnes phosphate and by-products plant with Saudi Basic Industries Corporation.

Saudi Arabian Mining Co trades with the stock ticker 1211.SR on the Tadawul stock exchange. The company’s stock has gained 188% since its IPO on the Tadawul Stock Exchange in July 2008 but dropped 18% within a year of listing. YTD, shares of Ma’aden are up 33%.

At a price to earnings ratio of 190x, Saudi Arabian Mining shares trade at a premium to Saudi Arabian stock markets. Sell-side analysts have assigned 2 buy ratings, 6 sell ratings and 5 hold ratings to shares of the company.

Going forward, IPO activities will continue to gain momentum in the region, despite proliferating geopolitical uncertainties and subdued oil prices. However, investors will keep a close watch on the length and breadth of economic diversification in the region. As a long term economic objective to reduce reliance on energy exports, countries across GCC are spearheading ambitious diversification plans. These ambitious plans are underpinned by increased investment into infrastructure, logistics, tourism, technology, and human resource development. Subdued oil prices will continue to be a drag on the economy, but if the non-oil component can significantly offset this impact, investor confidence should further pick up.


Russian ETFs Are Underwater, But These 7 Stocks Have Mitigated Their Fall Into Negative Territory

Russian equities have had a difficult year compared to many of their peers. In a year when the MSCI Emerging Markets Index has risen 30% until November 13, the MSCI Russia Index has fallen 1%. It is one of only three MSCI country indices in the emerging markets universe which is in the red for the year, Qatar and Pakistan being the other two.

Of the five ETFs investing in Russian equities and traded on US exchanges, two – the VanEck Vectors Russia ETF (RSX) and the iShares MSCI Russia Capped ETF (ERUS) – are broad-based and non-leveraged.

Between the two, US investors have shown a clear preference for the ERUS as shown in the graph below.

Though the year had begun well for the RSX, its fortunes changed from the beginning of March with its shares outstanding going into a broad decline since. On the other hand, the ERUS has seen increased purchases, though it has mostly come in fits and starts instead of continuous flows.

Investor flows exhibits the same trend, as shown in the graph below.

In YTD 2017 until November 13, the ERUS has seen net inflows of $186 million while the RSX has seen net outflows of $604 million, according to Bloomberg data. Even among ETFs listed outside of the US, the ERUS has attracted the most inflows in the year so far. It is followed by the France-incorporated LYXOR RUSSIA (Dow Jones Russia GDR) UCITS ETF – C ($105 million) and Luxembourg-registered db x-trackers MSCI Russia Capped Index UCITS ETF ($74 million).

However, among the US-listed funds, the RSX still remains the larger of the two with $2 billion in assets compared to $650 million for the ERUS.

Head above water

In terms of performance, unlike the MSCI Russia Index, the two ETFs have been able to keep their head above water with the RSX (4.7%) edging out the ERUS (3.6%) in YTD 2017 until November 13.

There’s not much difference in terms of the number of holdings with both invested in about 30 instruments. Further, the expense ratios are nearly the same as well. However, while the ERUS tracks the MSCI Russia 25/50 Index, the RSX follows the MVIS Russia Index.

Portfolio composition difference which explains performance

Though stocks from the energy sector form the biggest chunk of the portfolios of both funds (40% for RSX and 47% for ERUS), there is marked difference in the rest of the composition.

The two most significant ones are the exposure to financials and information technology sectors. While financials forms a quarter of the portfolio of ERUS, it forms only 15% of the RSX. Meanwhile, tech stocks form half of the weight of financials in RSX while the ERUS is not invested into the sector at all.

In terms of contribution to returns, financials are by far the highest contributing sector to the ERUS with materials being a distant second. Telecom services were the only other sector to contribute positively to the fund in the year so far.

On the other hand, stocks from the information technology sector have led gains for the RSX, followed by those from financials and materials sectors in that order. The difference between the contributions of these three sectors is not as significant as it is in the top three contributing sectors of ERUS. Consumer staples was the only sector which has dragged on the returns of the RSX in YTD 2017.

Stocks which have helped gains

The sponsored American Depository Receipts (ADRs) and the common shares of Sberbank of Russia (SBRCY) from financials have been the top two contributors to the ERUS. PJSC Mining and Metallurgical Company Norilsk Nickel (NILSY) from materials was the third largest contributor.

Though the energy sector overall has been a negative contributor to ERUS, shares of PJSC Tatneft (OAOFY) come in at fourth highest in terms of individual contributors, with the biggest five being completed by PJSC Mobile TeleSystems (MBT).

For the RSX, ADRs of SBRCY have been the highest positive contributors in the year so far. And OAOFY and NILSY find themselves ranked third and fourth respectively.

The information technology sector rounds out the top five list for ERUS, with search-engine provider Yandex N.V. (YNDX) emerging as the second highest contributor to the RSX in YTD 2017 while the Global Depository Receipts (GDRs) of online communication and entertainment services provider Mail.Ru Group Limited (MLRYY) edges out MBT for the fifth spot.

Bank Merger In Malaysia To Create Second Largest Islamic Lender; Five Other Banks To Watch

Acquisition of Asian Finance Bank to create second largest Malaysian bank

Malaysian lender Malaysia Building Society Berhad (1171.KL) could soon become a full-fledged bank. The lender recently laid out plans to acquire Asian Financial Bank (AFB) in a deal that would result in the merged entity becoming Malaysia’s second largest Islamic bank by assets. After the merger, Malaysia Building Society would have an asset base of $10.5 billion (44 billion ringgit) and operate 46 branches.

Malaysia Building society will buy the stake held by foreign shareholders – Qatar Islamic Bank, Financial Assets Bahrain, RUSD Investment Bank and Tadhamon International Islamic Bank – for $153 million (645 million ringgit). The company recently stated that it would pay $94 million (397 million ringgit) in cash and the remaining $59 million through the issuance of 225.5 million shares at 1.10 ringgit per share. The proposed merger will be completed by the first quarter of 2018.

In a note to investors, officials from Malaysia Building Society Berhad said, “The merged entity is expected to leverage on the strength of MBSB’s business and the banking license held by AFB is anticipated to provide a unique opportunity for the merged entity to emerge as a full-fledged Islamic banking franchise in Malaysia.” In the last few years, the company has been trying hard to get a banking license that would give it access to cheaper sources of funding. Moody’s said this merger would be “credit positive” for Malaysia Building Society and would lower its funding costs, thereby widening margins. Further, it would also broaden its revenue streams as the merger would enable the company to offer a wider range of products and services through Asian Finance Bank’s banking license. However, this merger would intensify competition in the Malaysian banking sector.

ETFs offering exposure to Malaysian banks

Foreign investors seeking exposure in Malaysia’s banking sector could invest in country focused ETFs that offer diversification through investment in a single US security.

The most popular ETF for U.S. investors is the iShares MSCI Malaysia ETF (EWM). The iShares MSCI Malaysia ETF (EWM) invests in 43 of the most liquid companies in Malaysia.

With assets under management of $448 million, the EWM ETF offers concentrated exposure to Malaysian companies. Financials is the top sector with 31% of assets, followed by utilities, industrials and telecommunication services with weightings of 14.8%, 14.5%, and 9.9% respectively. The ETF’s exposure to the financials sector has remained in the 30% to 32% range in the last five years. EWM’s top five holdings include 3 large banks – Public Bank, Malayan Bank, and CIMB Group Holdings. The fund is up 5.7% over the last one-year period, and year-to-date in 2017 it has gained 14.6%.

Largest banks in Malaysia

Year-to-date, the MSCI Malaysia Index has returned 5.9% while the Malaysian benchmark FTSE Bursa Malaysia KLCI Index has appreciated 6.2%. In comparison, the MSCI Malaysia Financials Index has soared 10.8%, outperforming broad based Malaysian stock market indices.

The largest Malaysian banks by assets are Malayan Bank, CIMB Group Holdings, Public Bank, RHB Bank and Hong Leong Financial. In 2016, these banks held assets worth $164 billion, $108 billion, $84.7 billion, $52.7 billion and $50.9 billion respectively.


Malayan Banking Berhad, commonly known as Maybank is Malaysia’s largest bank by market cap as well as assets.

It is also among the largest banks in Southeast Asia with assets of $164 billion in 2016. The company has a current market cap of $23.5 billion. Maybank’s Islamic banking arm, Maybank Islamic, is currently ranked as the top Islamic bank in Asia Pacific and fifth in the world in terms of assets.

The company has a widespread international network spanning across all ASEAN countries. The bank currently has 2,400 branches in nearly 20 countries of the world and employs 45,000 employees.

In 2016, Maybank generated revenues of $7.6 billion and net interest margins of 1.9%.

Maybank‘s shares trade on the Kuala Lumpur Stock Exchange, Bursa Malaysia with ticker 1155.KL and on US OTC Markets with ticker MLYBY. The bank’s Kuala Lumpur listed shares have surged 20.7% in 2017.


CIMB Group Holdings is Malaysia’s second-largest bank by assets and third largest by market capitalization. The company has a current market cap of $13.5 billion. The company is one of the largest Islamic banks in the world and the largest Asia Pacific (ex-Japan) based investment bank. CIMB also has a wide presence in retail banking with 1,080 branches across the Asia Pacific region.

Currently, the group’s businesses are spread across 18 countries across the globe, primarily in the ASEAN region as well as global financial centers like New York, London and Hong Kong. The bank’s geographical reach is aided by strategic partnerships in various countries. Its largest partners include Principal Financial Group, Bank of Tokyo-Mitsubishi UFJ, Standard Bank and Daewoo Securities.

In 2016, CIMB group generated revenues of $6 billion and net interest margins of 2.5%, highest among its peers.

CIMB’s shares trade on Bursa Malaysia with the ticker 1023.KL and on US OTC Markets with the ticker CIMDF. The bank’s Kuala Lumpur listed shares have surged 40.8% in 2017 so far, and have outperformed its banking peers as well as the Malaysian benchmark KLCI Index.

Public Bank Berhad

Public Bank Berhad is Malaysia’s third-largest bank by assets and the second largest by market cap. The bank offers financial services across the Asia Pacific region. The company has a current market cap of $18.8 billion.

Public Bank is more focused on its retail banking business even though it offers a complete suite of services ranging from personal banking, commercial banking, Islamic banking, investment banking, share broking, trustee services, nominee services, sale and management of unit trust funds, and general insurance products.

In 2016, Public Bank Berhad generated revenues of $4.62 billion and net interest margins of 2.0%.

Public Bank’s shares trade on the Bursa Malaysia with ticker 1295.KL. The bank’s shares have surged 6.8% in 2017 so far, and have underperformed its banking peers.

RHB Bank Berhad

RHB Bank Berhad is Malaysia’s fourth-largest bank by assets and the fifth largest by market cap. RHB Bank was incorporated in 1994 as DCB Holdings Berhad. The company, a subsidiary of RHB Capital (1066.KL), has been formed by three mergers with Kwong Yik Bank Berhad, Sime Bank Berhad and Bank Utama (Malaysia) Berhad in 1997, 1999 and 2003.

Currently, the bank has a network spanning 8 countries across Asia including Brunei, Cambodia, Indonesia, Hong Kong, Malaysia, Singapore, Thailand and Vietnam.

In 2016, RHB generated revenues of $ 2.6 billion and net interest margins of 1.7%.

RHB Bank’s shares trade on the Bursa Malaysia with ticker RHBC.KL. The bank’s shares have surged 4.9% in 2017 so far.

Hong Leong Bank

Hong Leong Bank, part of Hong Leong Group is the fifth-largest Malaysian bank by assets, and the fourth largest in terms of market cap. The company has a current market cap of $7.8 billion.

Based in Malaysia, Hong Leong Bank has a presence in Singapore, Hong Kong, Vietnam, Cambodia and China.

In 2016, Hong Leong generated revenues of $1.8 billion and net interest margins of 1.8%.

RHB Bank’s shares trade on the Bursa Malaysia with ticker 5819.KL. The bank’s shares have surged 21.8% in 2017 so far.


The MSCI Malaysia Financials index is currently trading at a PE of 12.8x and price to book ratio of 1.4x. In comparison, the MSCI Malaysia Index trades at 16.5 times its past 12 months earnings and a price to book ratio of 1.7x.

Investors see valuations of Malaysia bank stocks as lucrative.

Alliance Bank Berhad, AMMB Holdings, RHB Bank, Hong Leong Financial and Affin Holdings are currently trading at inexpensive valuations compared to their peers. They have price-to-book multiples of 0.6x, 0.8x, 0.9x, 1.1x and 1.1x respectively.

Meanwhile, Public Bank, Hong Leong Bank, Malayan Bank, and CIMB Holdings are currently expensive with price-to-book multiples of 2.2x, 1.4x and 1.3x respectively.

Vietnam: The Major State Divestments Of 2017 And Which Companies Are Next

For the last few years, equitisation continues to be a focus for the Vietnamese government. The government hopes that equitisation will increase the efficiency and improve the management of the State-owned enterprises (SOE) which have been suffering from inefficiency for years. In addition, the much required capital raised from divestments will also assist the government to reduce its growing debt and fund infrastructure projects. In August 2017, the government released Decision No.1232/2017/QD-TTg approving a list of 406 state-owned enterprises to be divested during 2017-2020.

2017 Divestment Policy

The new decision not only lists the 406 approved companies marked for divestments but also includes mechanisms to accelerate and increase the efficiency of the divestment process. This has been included to address issues faced by investors during previous divestments, such as delay in the transfer of ownerships and lack of clarity in valuation.

There is also a provision allowing the rate of divestment and number of divested entities to increase in the next four years depending on the market.

Divestments until now

The number of SOEs has decreased drastically from 6,000 in 2001 to 700 in 2016. The number of industries with State investment has dropped from 60 in 2001 to 19 in 2016.

Divestments in 2016

In 2016, 56 enterprises were approved for equitisation. The total value of these firms was US$ 1.5 billion (VND 34 trillion), of which the State capital was valued at US$ 1.07 billion (VND 24.4 trillion). The stakes sold to investors were worth US$ 307.7 million (VND 7 trillion), those sold to workers were worth US$ 17.16 million (VND 388 billion), and shares sold at public auctions were worth US$ 189 million (VND 4.3 trillion).

Businesses under State Capital Investment Corporation (SCIC), state-owned holding company were able to earn more revenues than expected such as Bao Minh Joint Stock Company (148 percent higher than the planned revenue), Binh Minh Plastic Joint Stock Company (131 percent), Vietnam Construction and Import-Export Joint Stock Corporation, and Vinaconex (114 percent).

Return on equity for firms such as Vinamilk and FPT Telecom were also higher than expected, at 42 and 29 percent respectively.

Divestments in 2017

As of September 2017, total revenue from divestment is expected to add VND 19 trillion (US$ 835.2 million) to the budget based on the value of the share of state capital expected to be divested from 135 enterprises. Based on share prices on the stock exchange, it can reach up to VND 29 trillion (US$ 1.28 billion).

The total number of approved SOEs stands at 375, with a total capital of VND 108.5 trillion (US$ 4.8 billion). Total capital expected to be divested during 2017-2020, stands at VND 64.5 trillion (US$ 2.8 billion). These figures exclude SOEs belonging to the Ministry of National Defence, Ministry of Public Security, Ho Chi Minh City People’s Committee, the State Capital Investment Corporation (SCIC), and SOEs selling capital under the PM’s separate decisions. If we include the SOEs under the mentioned government agencies, then the total state-owned capital can be over VND 100 trillion (US$ 4.4 billion) at least.

In here, we will discuss the major divestments in the shipping, oil & gas, beverage, and airlines industry.

Shipping and Ports

Vinalines, the country’s largest shipping company is aiming to reduce its stake in ocean shipping companies, but will maintain ownership in marine logistics companies to ensure the development of marine logistics network and reduce losses in ocean shipping companies. In addition, the company is also divesting its stake in ports.

Vinalines’ seaports earned VND307 billion ($13.58 million) in profit in the first half of 2017, while marine logistics companies earned VND838 billion ($37.06 million) in profits. Ocean shipping companies witnessed a loss of VND904 billion ($39.98 million).

Vinalines is due to make an initial public offering (IPO) in December this year and make its debut as a joint stock company in April next year. Currently, it owns a fleet of ships with a capacity of more than two million tonnes, accounting for 25 percent of the nation’s total capacity.

Oil and Gas

Vietnam National Oil and Gas Group (PetroVietnam) will complete the divestment from several subsidiaries by 2020. They are allowed to retain their entire holdings in only the parent company PetroVietnam, National Southern Spill Response Centre (Nasos), and PetroVietnam Manpower Training College.

Subsidiaries being divested until 2019 include PVI Holdings, Phuoc An Port Investment and Exploitation Oil and Gas JSC, Green Indochina Development JSC, SSG Real Estate JSC, PetroVietnam Trade Union Finance JSC, PetroVietnam Construction Joint Stock Corporation, and PetroVietnam Maintenance and Repair JSC. In addition, stakes in PetroVietnam Gas Corporation, PetroVietnam Transportation Corporation, Binh Son Refinery and Petrochemical Co., Ltd., and PV Power will also be reduced to less than 50 percent.

In addition, stakes in PetroVietnam Gas Corporation, PetroVietnam Transportation Corporation, Binh Son Refinery and Petrochemical Co., Ltd., and PV Power will also be reduced to less than 50 percent.

PetroVietnam reported a revenue of VND247 trillion ($10.8 billion) in the first six months of 2017, up VND31.5 trillion ($1.3 billion) compared to the same period last year, including an after-tax profit of VND13.1 trillion ($572.8 million), up VND2.6 trillion ($113.6 million).


Vietnam Airports Corporation (ACV) and Vietnam Airlines (VNA) are going to divest large stakes for future funding requirements. ACV will sell off 20 percent of its state stake in 2018 and 10.4 percent in 2019, while VNA will sell 35.16 percent in 2019, thus reducing state ownership in the firms to 65 percent and 51 percent, respectively.

These divestments offer a chance for foreign investors to enter the aviation market. There already is a considerable interest from investors for both the entities. The aviation industry in Vietnam contributes US$6 billion annually to the GDP and grew 29 percent year on year in terms of passengers in 2016.

Already Paris Aeroport has become ACV’s strategic investor and ANA has acquired 8.8 percent stake in VNA for VND2.38 trillion ($108 million).


The two state-owned breweries, Saigon Beer Alcohol Beverage Corp. (Sabeco) and Hanoi Beer Alcohol Beverage Corp. (Habeco) have already attracted considerable interest from foreign investors. The beer market grew 9.3 percent in 2016 in comparison to previous year.

Already firms such as Heineken, San Miguel, Thai Beverage Public Company, Asahi Group Holdings and Kirin Holdings have shown interest.

Later in the year, the government will release further details about their divestment plans.


Other major divestments include Vinamilk, Vietnam Southern Food Corporation (Vinafood), Vietnam Urban and Industrial Development Investment Corporation (IDICO), Vietnam Rubber Group (VRG), companies under Vietnam Electricity Corporation (EVN), Song Da Corporation, and MobiFone.

Changes in divestment policy

The 2017-2020 plan is different in various aspects from the 2011-2015 plan. In the 2011-2015 plan, only SOEs in real estate, securities, finance/banking, insurance, and investment funds were allowed to be divested. This led to revenues from sales to be confined within the SOEs and only changed the investment portfolio of SOEs.

In contrast, for 2017-2020, the divestment will lead to a change in the state’s portfolio of assets. From now onwards the sales revenue from divestments will be directed towards public investments projects unlike in 2011-2015, when revenue was held by the SOEs, leading to an increase in the state capital in the business.

In the recent divestment policy, the government has also added a provision to divest in instalments, with the rate fixed at 20 to 36 percent of the total holding. This has led to an increase in the number of divested SOEs.

Investment challenges

The major investment hurdles faced by foreign investors include unfair valuations, unable to acquire a controlling stake, and delays in transfer of ownership.

Investors have often highlighted the delay in the process of transferring stakes from ministerial or provincial people’s committee level to SCIC that handles divestments. To reduce delays, the government in their recent decision, has asked the people’s committees in each city/province to report prior to the 25th of the last month of each quarter as well as on December 25 each year, to the Steering Committee for Enterprise Innovation and Development, Ministry of Finance (MoF), and Ministry of Industry and Trade (MoIT) for progress.

According to a recent study by the Central Institute for Economic Management and the American Chamber of Commerce (AmCham), divestments in SOE has been slower than expected as it has failed to attract strategic shareholders, especially international investors. Investors have highlighted the limitation in foreign ownership as the major reason to not invest.

In addition, the lack of transparency in the divestment process, unreasonable evaluation of enterprises, poor management, existing company liabilities, and incompetent staff were highlighted as the other factors affecting investor’s sentiments.

Need to do more

The government needs to attract strategic shareholders, especially international investors to invest in the SOEs. This will not only bring in the much need foreign capital, but also lead to value addition such as newer technologies, administrative skills, and access to newer markets, which will lead to a more sustainable growth.

To do so, the government has to increase transparency regarding regulations, reduce red tapism, and incorporate international practices for determining the business value and transaction cost of shares to ensure clarity. The government has to ensure that sufficient time is given to foreign investors for their due diligence prior to bidding to increase chances of investment. Foreign investors are the key to these divestments, bringing in the much-needed capital.

Investment considerations

Equitisation offers investors an opportunity to enter the market in major industries such as food & beverage, telecommunications, aviation, energy, shipping, and retail and invest in companies with a dominating market share.

Investors should ensure clarity about management control, corporate governance practices, technology transfer, organizational structure, and future options for increasing stake in the SOEs.

In addition, investors should carefully identify the decision makers to influence negotiations. Decision makers in SOEs not only includes the management members, but also the government officials in agencies overseeing the divestment process.



Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.


This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.


Japan Stock Markets Rise To 25-Year Highs; These 3 Export-Driven Stocks Could Lead The Next Surge

Japanese stock markets are booming

The Nikkei 25 Index has surged to its highest levels last week since 1992 on strong earnings reports and Prime Minister Shinzo Abe’s re-election victory. In 2017 so far, the Nikkei 225 index is up 19.5% while the MSCI Japan index has gained 18.4%. Experts attribute this outperformance to significant improvements in the Japanese economy driven by Prime Minister Shinzo Abe’s policies as well as rapid growth in Asia.

Japan brokerage firm Okasan Securities expects the Nikkei index to surge to the 25,000 level by March 2019, while Nikko Asset Management forecasts 30,000 in the next two years.

The Nikkei 225 Index is up 15% over the last three months and 34% in the past one year. However, it is still 70% lower than its all-time high of 38,915 in 1989.

Furthermore, the MSCI Japan Index trades at a price to earnings ratio of 19.5, significantly lower than historical averages, thereby making Japanese stocks look inexpensive. In comparison, US Stock markets trade at an average PE of 23x.

Gluskin Sheff’s chief economist and strategist David Rosenberg is also bullish on Japan, given its inexpensive valuations. In a CNBC interview last week, he stated, “What’s interesting in Japan is that the small cap stocks are starting to outperform large cap stocks. So, what that’s telling me is that this is more than just buy Japan because of the weak yen. This is actually a much more fundamental story that people are missing.” He continued, “Japan is probably the most under-owned stock market on the planet from a global portfolio manager perspective.”

ETFs with exposure to Japan

Foreign investors seeking exposure in Japan could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Japanese companies.

The most popular ETF for U.S. investors is the iShares MSCI Japan ETF (EWJ). The iShares MSCI Japan ETF (EWJ) seeks to track the returns of the MSCI Japan Index.

With assets under management of $18.4 billion, the EWJ ETF offers concentrated exposure to Japanese companies. Industrials are the top sector with 21% of assets, followed by consumer discretionary, information technology and financials. The funds top five holdings constitute ~10% of its assets, making it fairly diversified. The fund is up 20.1% over the last one-year period, and year to date in 2017 it has gained 21.8%.

Stocks to track

Renewed confidence in the American economy, Japan’s largest export partner has driven stocks of cyclical and export-based companies.

Large-cap Japanese stocks such as Tokyo Electron, Recruit Holdings and Sony Corp have gained the most in 2017. Shares of these companies have soared 112%, 78% and 66% year to date, outperforming key benchmark indices.

Tokyo Electron (TOELY) has been the best performer after the semiconductor company beat profit estimates and raised earnings outlook. Sony and Recruit Holdings have also posted stellar earnings.

Tokyo Electron

Tokyo Electron (8035.JP) is a leading manufacturer of integrated circuits and flat panel display equipment. The company has a weighting of 3.7% in Nikkei 225 Index, fifth highest. Currently, the company has a market cap of $32 billion.

Recruit Holdings

Japan based Recruit Holdings (RCRRF)(6098.JP) is a temporary staffing agency for temporary workers. The company listed in 2014 in Japan, now has a market cap of $41 billion. Recruit Holdings has a weighting of 1.3% in the Nikkei 225 Index.

Sony Corp

Sony Corporation (SNE) (SNEJF) is a Japanese multinational conglomerate and a leading manufacturer of electronic products for consumers and corporate users. Sony is ranked 105th on the 2017 list of Fortune Global 500 companies.

The company carries a weight of 0.9% in the Nikkei 225 Index and has a market cap of $59 billion.