Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The implied subscription price equates to Vnd71,918 per share, the same price at which BaoViet sold shares in a domestic initial public offering in August 2007.
The allotment to HSBC is part of the Vietnam government's plan - following a similar approach to that already witnessed in China - to sell equity in SOEs to the private sector, via IPOs and strategic stake sales. It will be effected by HSBC buying 57,302,661 shares, representing 10% of the share capital, in a new joint stock company, BaoViet Holdings. HSBC has committed to hold its shares in BaoViet for a minimum period of five years. HSBC will get board representation proportionate to its ownership, say sources close to the deal.
HSBC has also negotiated an option to purchase an additional 8% interest in BaoViet after 18 months at the prevailing market price at the time. It also has pre-emptive rights to acquire shares currently owned by the Ministry of Finance, subject to a ceiling of 25%, within the first five years of the agreement, and prevailing foreign ownership limits thereafter.
BaoViet had a book value at the end of calendar 2006 of $140 million and a net income of $27 million. For the purpose of the investment, BaoViet has been valued at an equity value of $2.5 billion making any trailing multiples not meaningful.
HSBC is obviously willing to pay aggressively for the early mover advantage of investing in the market leader in a country where insurance penetration was estimated at just 1.5% of GDP in 2006.
An integral part of the partnership between HSBC and BaoViet is a technical services and capability transfer agreement, which provides for cooperation between the two parties in key areas. These include the secondment of employees, research and development into new products in both life and non-life insurance, the implementation of international standard corporate governance practices, as well as co-operation in asset management, banking and other business areas.
"This investment is in line with HSBC's stated strategy of targeting high-growth markets with international connections,ö says Stephen Green, group chairman of HSBC, in a written statement. "The deal complements HSBC's presence in the country's banking sector - where we were the first foreign bank to receive approval for a 15% strategic investment in a domestic Vietnamese bank, Techcombank - and reinforces our commitment to build a presence in emerging markets." HSBC was advised by HSBC corporate, investment banking and markets.
BaoViet, which was advised by Credit Suisse, is headquartered in Hanoi and is the leading insurance and financial services group in Vietnam. It claims a 35% market share in general insurance with 20.2 million policy-holders at the end of calendar 2006. It has a number two position in life insurance with 1.6 million life policies in force.
BaoViet has a branch network of 126 branches and 400 sub-branches, with 5,000 employees and 40,000 agents. It also has ancillary businesses in fund management, securities and investment banking as well as real estate.
The deal with HSBC has a number of firsts to its credit. It marks the completion of the first major equitisation of a state-owned enterprise in Vietnam and the first major transaction in the financial services sector. It is also the largest M&A deal in the country.
VietnamÆs standing deputy prime minister, Nguyen Sinh Hung, who attended the signing ceremony on September 13, highlighted the signaling effect of the transaction, saying that the government is committed to economic reforms and further equitisation programmes.
This is good news for the laundry list of other banks and financial services majors hoping for a piece of the action in an economy that analysts are growing more and more bullish on.
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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Investors are increasingly turning to private companies and private debt in their hunt for ESG alpha, but the age-old problem of transparency and due diligence remains