VietcomBank - Mizuho Deal Analysis

July 28, 2011 |

Total Page: 10 Pages

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Topic: Banks

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VCB plans to sell 20% equity stake to Mizuho: Why is it worth watching?  

VCB is likely to sell  20% stake to Mizuho – one of the biggest banks in the world – with total proceeds of up to $760 million continues to show the attractiveness of Vietnam’s big-name, well-managed and well-recognized enterprises to the world of  foreign investors.

After selling 20% stake, the State ownership is reduced to 72.6%

VCB now has a chartered capital of VND19.698 billion equivalent to 1.97 billion outstanding shares after recording right to receive dividend payment at 1.2-for-10 ratio on July 20, 2011. VCB’s free float shares total appropriately 182 million, including shares issued for staff in IPO.

Doubling its chartered capital since IPO, are VCB shares getting diluted?

Since IPO in late 2007, VCB has doubled its chartered capital if the share issue to Mizuho is concluded. VCB’s net profit rose 68% in the 2008-2010 period, therefore raising chartered capital is acceptable to investors, in our opinion. The dilution matter is immaterial for VCB as it helps raise CAR to a safer level. By end 2010, VCB’s CAR was 9%, just enough to meet SBV’s requirement but lower than the international standard of 12%.

Sale of 20% VCB stake to Mizuho: expensive or cheap?

In view of VCB share trading on HOSE and the lender’s fundamentals and trademark, the price of VND30,900 a VCB share is fair, in our opinion. Usually, buying a strategic 20% stake at a 12% premium to the market prices is normally considered low. However, we should note that big deal like this also involves on other terms and concessions such as technical supports, taking part in management, etc.. which  are typically undisclosed to the public.

In comparison with 7 recent deals in the Vietnamese banking sector since 2009, VCB’s deal has the same valuation. This shows that the two sides are close to the pricing point.Accepting the price of VND30,900, Mizuho will buy VCB at 1.8 Book Value as of December 31, 2011 and EPS at 12.9x, (2011 forward). This is the same level as 7 previous deals.