The backdoor listing of VinFast and proposed IPO of VNG on U.S. stock exchanges have shed light on new paths for Vietnamese companies to raise capital in a volatile market, but they do not come without their share of stiff regulatory hurdles.
The prospect of access to high-value global investors, raising large capital in quick time and increased presence on international markets have prompted many Vietnamese companies to look at going public on U.S. stock exchanges over the years. But, unstable market conditions in recent years and regulatory hurdles at home have meant only a few have managed to complete the process. Two recent listing announcements could provide a way forward for others with their eyes on the global capital markets.
In August, Vietnamese electric automaker VinFast, listed on the U.S. stock exchange Nasdaq through a $23 billion merger with special purpose acquisition company (SPAC) Black Spade Acquisition.
This was closely followed by Internet company VNG announcing a proposed $150 million initial public offering on the New York Stock Exchange, a deal that has been put on hold until next year due to volatile market conditions, Reuters reported.
Other companies from the country, including Bamboo Airways, e-commerce platform Tiki, and retail company CrownX, have all expressed interest in listings in the U.S. over the last few years, but have deferred their plans on account of unstable market conditions and other internal considerations.
The backdoor listing of VinFast and proposed listing of VNG could serve as a pathway for others looking to list offshore, says Nguyen Van Hai, a capital markets partner at Vietnamese law ﬁrm YKVN.
This is particularly the case among start-ups and technology companies that may not be able to list in Vietnam, given the country’s rules do not allow companies operating at a loss to go public, explains Nguyen.
Vietnamese companies are no exception to the global trend among tech start-ups, including Snap and Uber, of operating at a loss for a longer period as they spend venture capital on customers and prioritise market share over proﬁts.
But the U.S. has found few takers so far. And it could be that given the dry spell Vietnamese companies have had in capital markets over the last few years, companies “may have wanted to witness a Vietnamese company take a pioneering step to list on an offshore stock exchange before taking steps themselves,” Nguyen says.
While Nguyen says that it is a misconception that listing on offshore exchanges, particularly the U.S., is exceptionally complex, he does admit that Vietnam’s regulatory framework – or lack of it – makes the process challenging.
Vietnam’s regulatory framework for offshore listings is in its nascent stage, and companies like VinFast and VNG have used holding companies in Singapore and the Cayman Islands, respectively, as listing entities.
“The local framework, for the time being, is not fully equipped to facilitate a direct listing of a Vietnam-incorporated entity on an offshore exchange. That’s why they need to go through some corporate restructuring to have an offshore arm to hold the business and then use that offshore entity as a listing entity,” Nguyen explains.
Other logistical issues surrounding fungibility of shares and distribution of dividends also prevent Vietnamese companies from being directly listed overseas, adds Nguyen.
“The local framework, for the time being, is not fully equipped to facilitate a direct listing of a Vietnam-incorporated entity on an offshore exchange. That’s why they need to go through some corporate restructuring to have an offshore arm to hold the business and then use that offshore entity as a listing entity.”
— Nguyen Van Hai, YKVN
Nguyen explains that international shareholders in a Vietnamese company expect any dividend to be transferred to their accounts. But, it remains uncertain under the current regime if a Vietnam-incorporated company is able to transfer funds offshore to pay dividends to off-shore shareholders.
Tina LeDinh, managing partner of Allen & Overy’s Vietnam ofﬁce, also adds that the speciﬁc characteristics of each issuer will determine whether a local listing and international bookbuild under the current regulatory framework is feasible. These considerations can include capital structure and foreign ownership limits, for example.
“We haven’t yet ﬁgured out a one-size-ﬁts-all structure in terms of the regulatory framework to allow the traditional international book-building to be merged with Vietnam’s local listing requirements, and so a lot of these deals are being structured on a company-by-company basis,” LeDinh explains.
As an investor, one looks at the capital-related controls in the jurisdiction of the target company. With the strict restrictions in Vietnam, companies would look to set up their investment vehicle in countries which allow investors more monetary ﬂexibility, which in turn attracts more capital, LeDinh adds. Moreover, the process to list overseas, or set up holding companies abroad, requires permission from various government regulators. The State Securities Commission of Vietnam (SSC) is overwhelmed with the number of companies submitting application for various things and have not come out with detailed guidelines on the speciﬁc process, LeDinh says.
“If a company wishes to list overseas, it could ask the SSC for guidance, but I’m not sure if, at this time, the SSC would be in a position to provide speciﬁc guidance or regulate the implementation of the process. That may take some time,” LeDinh adds.
With an overseas listing entity, companies must then decide between the traditional IPO route and a de-SPAC merger.
TO SPAC OR NOT TO SPAC
In 2021, Vietnamese e-commerce company Society Pass became the first technology company from the country to complete a traditional IPO in the U.S., raising $26 million in gross proceeds. VinFast went the SPAC route, merging with a shell company to complete its listing on Nasdaq. The stock opened at $22, more than double the $10 per share agreed upon with VinFast’s SPAC partner, Black Spade Acquisition, which valued VinFast at $23 billion.
According to the U.S. Securities and Exchange Commission (SEC), a back-door listing through a SPAC provides more certainty as to the amount raised, potentially a shorter timeframe than the traditional IPO process, access to liquidity that might not have otherwise been available and a strategic partnership with an experienced management team that the SPACs sponsors put together. But, LeDinh believes that while SPACs are attractive for these reasons, the growing regulatory scrutiny around them makes the traditional IPO route a better option. “At the end of the day, there’s more certainty around pricing when you have underwriters running your books and doing investor education on the ﬁnancials of the company itself versus having a SPAC undertaking a merger with the target company,” she adds.
LeDinh also believes that as the local capital market recovers, more Vietnamese companies will look to list on local exchanges.
A Deloitte report found that the Vietnam market recorded just eight IPOs in 2022, of which six were completed in the ﬁrst half. This slowdown was consistent with the global trend, and LeDinh believes local listings will pick up as the market recovers.
“A lot of Vietnamese companies feel very strongly about listing in Vietnam because they’re homegrown Vietnamese companies, and they want to allow Vietnamese retail investors to participate in ownership of their companies.”
For those in Vietnam looking to list in the U.S., the recovery of global markets does allow companies to put their offshore listing plans back on track, but it does not necessarily mean an uptick in the number of entities going public. “For companies that are going to market now, the timing is driven by their own capital needs, and in some cases, they need just to honour commitments that they’ve had with their shareholders and other stakeholders,” LeDinh says. “It may give some companies comfort and conﬁdence that they can explore something like this, but again, I think it will come down to readiness and the companies’ own timelines. I’m not sure that this will necessarily inspire like a whole slew of U.S. IPOs next year, but I think it will give companies more comfort that something like this can be explored,” she adds.