Monday, October 15, 2007

PetroVietnam establishes finance company via stock IPO

PetroVietnam flexes some financial muscle

Investor interest in PetroVietnam Finance Corporation (PVFC) is climaxing with its initial public offering just a week away.

PVFC plans to auction 59.6 million shares on October 19. SeaBank Securities, PVFC’s financial advisor for the public offering, has set the initial bidding price at VND51,000 a share.

Besides being a subsidiary of Viet Nam’s leading oil producer, PetroVietnam, there are several reasons why investors want a piece of PVFC, including solid earnings.

The company has reported VND2 trillion (US$125 million) in revenue for the three quarters ending September 30, and a pre-tax profit of VND703 billion ($43.9 million).

"Looking at the company’s financial results, investors have high expectations for the IPO," says Hoang Mai Hoa, an analyst at Royal Securities.

Investors also feel comfortable in knowing PVFC is an arm of PetroVietnam, which in itself is expected to prosper as crude oil production increases, says Hoa.

Another important factor is the auction price is "surprisingly affordable for investors", especially for a blue chip, says James William, an executive with a HCM City fund management company.

Given demand and all the hype surrounding the IPO, William predicts PVFC shares could hit VND200,000 a piece when they officially list on the HCM City Stock Exchange.

PVFC has already announced Morgan Stanley as a posible strategic partner - a deal is expected to be complete before PVFC shares list on the exchange.

"Morgan Stanley is a leading financial firm in the global market. If it becomes a PVFC strategic partner, the Vietnamese financial corporation will be at an advantage in the local market," says William.

Deputy Prime Minister Nguyen Sinh Hung has ordered PVFC to limit total foreign ownership to 30 per cent, with any single overseas partner allowed to hold as much as 15 per cent.

Analysts, though, are warning investors not to be over zealous during the IPO.

"The market is not as hot as it used to be," says Dao Van Khanh, an Agribank Securities executive. "If share prices surge, they will not stay that way for long. If investors intend to trade in PVFC, then the initial public offering may not be a good time to buy."

Another concern, says Khanh, is more fundamental - the company is expanding aggressively into other industries, including property and media. By spreading its limited capital resources, PVFC might inadvertently put its core business at financial risk.

Nguyen Tien Dung, PVFC chairman, says money raised during the public offering will go toward the company’s core operations, which should improve earnings. He said there is little cause for concern regarding capital resources being spread too thin.

"The real value of the corporation is ensured," said Dung.