The delights of doing business in a communist country
What can you expect of a country that considers beer with snakes’ blood a cocktail of choice? Certainly not the bursting of a stock market bubble. But that’s what happened in Vietnam earlier this year. Carlsberg considers itself lucky. Only after most of the shares in brewer Habeco remained unsubscribed to in its IPO was Carlsberg allowed to buy more shares than initially planned.
Readers of The Economist had known it for months: Vietnam’s stock market bubble was to pop. When it did the Vietnamese Ministry of Industry approved state-owned brewery Habeco’s choice of Carlsberg as strategic partner in connection with the initial privatisation of Habeco.
The initial privatisation took place on 28 March 2008, and Habeco has confirmed that Carlsberg will become the owner of 16 percent of the shares in Habeco. Initially, Carlsberg’s stake was to be limited to 10 percent.
Carlsberg will pay the same price per share as other investors who participated in the public offer (VND 50,015 per share, equal to approx. USD 3.10/share). The total consideration to be paid by Carlsberg is approx. USD 115.6 million, or DKK 545m. The government raised only VND 198.5 billion (USD 12.3 million) from the IPO compared with the VND 1.74 trillion (USD 108 million) the company had anticipated.
Of the 34.8 million shares on offer, bids were made for only 4 million.
Its sister company from down south, Sabeco, did slightly better. Saigon Brewery Company (Sabeco) raised USD 341 million in its IPO in January – but it still reaped less than 60 percent of its initial target. Tellingly, overseas investors bought only 6.9 million of the 128.3 million shares on offer, despite the fact that they were entitled to take up to 49 percent of the offer, it was reported. Valuation was - once again - the problem, with the starting price for bids set at D 70,000, that is 72 times 2007 earnings. In the wake of the Sabeco IPO, the State Securities Commission has told companies to delay plans for public offerings unless they are vital.
Carlsberg entered Vietnam in 1993 through the formation of at joint venture with Viet Ha Brewery owned by the Hanoi Peoples Committee. Carlsberg owns 60 percent of South East Asia Brewery, which is the name of the operation. In 1995 the second Carlsberg joint venture was founded through cooperation with the Hue Peoples Committee in Hué Brewery, on which Carlsberg owns 50 percent. In 2007 Carlsberg acquired a 30 percent shareholding in Halong Brewery and later in 2007 Habeco and Carlsberg jointly established a new joint venture in Vung Tau province outside of Ho Chi Minh City in southern Vietnam, where a new brewery will be constructed. Habeco is market leader in northern Vietnam.
Similar to other countries in the region the beer market in Vietnam is rapidly growing. The current consumption level amounts to 19 litres of beer per capita. The future annual growth rate is estimated to be about 8 percent - like the Vietnamese GDP, says Carlsberg. Last year’s consumption figure was 18 million hl of beer which is was set to rise to 27 million hl by 2015.
