Two private equity bankers and a lawyer in Vietnam concurred that Singtel is likely to be outbid by sector heavyweights, France Telecom and Vodafone.

MobiFone, the state-owned mobile operator, with an estimated market cap of US dollars 2bn, is set to list in April this year, said an insider at parent company Vietnam Posts & Telecommunications VNPT. MobiFone had 9.7 trillion dong (US$607 million) in revenues for 2006.

MobiFone would be interested in cooperating with SingTel, but SingTel is already in a strategic partnership with rival Viettel, the insider said, when asked. MobiFone has been approached by around five foreign mobile operators, the insider confirmed. The insider declined to comment further on the stake sale.

MobiFone is 100% owned by the Vietnamese government. Telecoms giants including SingTel, France Telecom, Vodafone, BT and Telenor are reportedly competing for the strategic stake.

The Vietnamese media reported that MobiFone would sell a 10-15% stake to a foreign strategic partner. Subsequent wire reports in 2008 cited France Telecom's CEO Didier Lombard as saying the group would be keen to acquire as large a stake as possible in MobiFone.

The first PE source argued that the core advantages of Singapore-headquartered Singtel, Southeast Asia's largest telco, were limited to technology and management value-add. Another PE source seconded this, and noted that Singtel, while Southeast Asia's largest telco, is a "regional heavyweight" compared to global heavyweights Vodafone and France Telecom. Singtel has a market cap of SGD 39.7bn (US$26bn). However, the two European telecoms majors are "already active" in Vietnam, he noted.

SingTel's spokesperson declined to comment on its bidding status, but said the group is still on the lookout for opportunities across Asia. Given the financial turmoil, it would be more cautious in making acquisitions, she added. In 2000, SingTel signed an agreement to operate a fibre link cable with VNPT.

Eric Le Dreau, Managing Partner of the Vietnamese law firm Indochina Legal who has advised on landmark M&A deals, said France Telecom had an advantage over the rest because the French mobile operator has demonstrated a long standing commitment to Vietnam.

In 2007, France Telecom signed a cooperation agreement with VNPT to facilitate technical and commercial partnerships between the two. "France Telecom invested in Vietnam for a long time under that inconvenient BCC vehicle. They would expect that this commitment to FDI in Vietnam pays off," Le Dreau argued.

In Vietnam, foreign ownership of telecoms companies is capped at 49%. One mode of direct investment is through a business cooperation contract (BCC), a partnership signed by two or more parties for one or more business operations.

Pricing indications for the stake sale and IPO have not been publicised, the first banker suggested the price would depend on the floated share price and the size of MobiFone's registered capital.

Vietnam's prime minister will have the final say on the bidding, the first PE source said, and the selected partner is likely be announced after the IPO. However, France Telecom and fellow bidders were still lobbying hard for the strategic partner to be selected prior to the IPO, Le Dreau noted.

This equitisation is the first step in the restructuring of Vietnam's telecommunications industry, the first PE source noted. MobiFone's debut will be viewed as a precursor to future telco listings with fellow state-run rivals Viettel and VinaFone widely tipped to follow suit, the first PE source noted.

"In the current market, it may be wise for VNPT to proceed in this manner," the same source said, with a nod to the successful equitisation of Bao Minh, an insurance firm listed in 2007.

In 2007, Vietnam had 24 million mobile subscribers, or a 30% penetration rate, against 56% in the Philippines, 71% in Thailand, 86% in Malaysia and 116% in Singapore, according to market research by ChinaCCM.com.

The Financial Times - February 25, 2009