The offer of shares in the "crown jewel" of the country's many state-owned enterprises (SOEs) is a symbolic milestone in a broader government plan to offload stakes in hundreds of companies.

But the state will still retain a controlling 75 percent stake in the flag carrier, suggesting there is little appetite for real change.

"Officials want to avoid real privatisation," economist Bui Kien Thanh told AFP. "With the economic system run by state officials, the economy can't grow effectively."

Just 3.5 percent of shares will be offered publicly Friday, a move Vietnam Airlines hopes will raise $51 million in a deal that values the company at $1.5 billion.

A further 20 percent stake will go to a strategic partner, while the rest is set aside for airline employees and the trade union.

"It's disappointing from a pricing perspective," said Kevin Snowball, CEO of PXP Vietnam Asset Management, who said the shares looked expensive relative to current and prospective earnings.

"It's symptomatic of the state of the whole equitisation process," he said, using the Vietnamese term for privatisation. "There is a fundamental misunderstanding across the board of what stock markets are for and how they work."

In Vietnam, an IPO is separate from an actual stock market listing sometimes by several years which Snowball said was another major deterrent for investors.

Yet despite the challenges there remains huge investor interest in the country -- a recent $1 billion government bond issue was heavily oversubscribed.

Vietnam Airlines is in a relatively strong position domestically, despite new competition from low-cost VietJet Air, with the country of some 90 million a fast-growing aviation market.

But it is expected to face stiff regional competition as it looks to expand long haul routes, and many experts question whether the carrier will be able to find an airline as a strategic partner.

"You see the same names in Asia emerge when an airline is looking to sell a stake to another airline, and very few deals have materialised," said Brendan Sobie, an analyst at the CAPA Centre for Aviation.

"Most airlines in this region have been losing money and most of the recent IPOs (such as Indonesia's Garuda) are trading below their initial price," he added.

- 'Huge bureaucracy to feed' -

Vietnam's privatisation project is part of a broader drive to attract foreign investment.

The country is increasingly reliant on export-orientated manufacturing, which is leading a gradual acceleration in the economy, in contrast to the debt-laden banking sector and SOEs, which have long acted as a drag.

Despite anti-China riots in May that hit foreign-owned factories, the communist country which first opened up its economy with reforms in the late 1980s has been increasingly well-perceived by foreign investors, with a slew of recent ratings upgrades.

It has made some strides in cutting red tape to lure companies such as South Korean electronics giant Samsung to invest billions of dollars in factories.

"What Samsung is doing setting up factories, exporting products is now quite easy," said Tony Foster, a lawyer with Freshfields.

But dealing with SOEs such as Vietnam Airlines can still be a nightmare for investors as the reality is "there is still a huge bureaucracy that needs to be fed", he said.

Many SOEs are heavily indebted, have incomprehensible strategies and hazardous investments in non-core sectors. Several, including shipping giants Vinashin and Vinalines, have collapsed in spectacular fashion under billions of dollars of debt.

In response to rising public anger over corruption and waste, Vietnam has handed lengthy prison terms and even the death sentence to a handful of top executives over the scandals.

But experts say little has been done to seriously dismantle vested interests and overhaul the system.

Key government figures such as Prime Minister Nguyen Tan Dung appear to back the privatisation drive, but others are more ambivalent in a country where laws guarantee the state controlling stakes in all key public companies.

Analysts think the IPO will bring Vietnam Airlines a little extra cash and potentially some foreign expertise, which could help improve efficiency, but is unlikely to bring a radical transformation in either the company or the state sector more broadly.

"They're trying to have their cake and eat it," Foster said, adding the IPO was not going to change the fact that overall "the state sector in Vietnam is a disaster".

Agence France Presse - 12 novembre 2014