Vietnam's Spotty IPO Record

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This is in stark contrast to China, where foreign investors have taken chunks of state-owned banks at lower valuations before the banks' IPOs. Bank of America (BAC), for example, took a stake in China Construction Bank before it listed in Hong Kong, while Industrial & Commercial Bank of China attracted Goldman Sachs (GS) and American Express (AXP) before taking itself public.

Another peculiarity of the Vietnamese market is that fundraising and listing are two distinct steps, with as much as a year lapsing from the time a company holds its IPO and when it actually starts trading on either the Ho Chi Minh or Hanoi exchanges. During the interim, shares trade on the unregulated curb market, where price information is hazy at best. Hence it is virtually impossible to gauge the performance of either Vietcombank or Sabeco until they actually list many months from now.

Overhaul on the Way?

Foreign investors, who are allowed to own up to 49% of most Vietnamese public companies (apart from banks, where the limit is 30%) are hoping that the recent botched IPOs are leading to some soul-searching among government officials in Hanoi. "There's bound to be a process of reflection and learning," says Dominic Scriven, director of investment bank Dragon Capital in Ho Chi Minh City. "The logical observation is there might be various stakeholders—the state, the buyers, domestic investors, institutional and foreign investors, the broad interests of the market itself, and not least the interests of the company itself," he says. "And one might observe that there have been different approaches and the balance appears to be out of kilter."

Another fund manager, who requested anonymity, proposes another theory as to why IPOs are so aggressively priced. He reckons that it is in the interests of management to see IPOs overpriced. That way, more shares are left over for them, which they can purchase at a 40% discount. He also believes that earnings are actually underreported in a company's prospectus for the same reason, making an IPO look less appealing than it really is.

Scriven agrees there may be some credence to this idea, in part because Vietnamese accounting methods don't conform with international norms, and in part because of the lack of reliable financial reporting. In Sabeco's case, Dragon Capital bought shares on the knowledge that the Vietnamese beermaker holds sizable stakes in smaller brewers whose financial results were not consolidated into Sabeco's earnings. However, on Sabeco's prospectus, the company only states it has 250 million liters of annual production, ignoring an additional 350 million liters in capacity from its subsidiaries.

Investors will have a chance to see whether regulators are going to rethink their IPO pricing strategies soon. The next big IPO planned is Vietnam's second-largest brewer, Hanoi Beer & Beverage, or Habeco. It plans to sell 15% of the company, raising as much as $100 million, by the end of the month. Other big IPOs in the pipeline for later this year include cellular-phone operator MobiFone and possibly flag carrier Vietnam Airlines.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong .