The Ministry of Finance has released a circular to instruct State-owned enterprises (SOEs) to use book-building to sell shares owned by the State.

An auction held at the Hanoi Stock Exchange

The circular is numbered 21/2019/TT-BTC and it will take effect on June 3, 2019.

Book building is the process in which an underwriter determines the price to place a securities offering upon the market demand of institutional investors.

Then the underwriter builds a book that indicates the amount of shares that those institutional investors want to buy and the prices they are willing to pay.

The book building method is applied for both SOEs that sell the State capital in either initial public offering (IPO) or post-IPO auction.

For SOE that will sell shares for the first time, the underwriter will have to develop a price range that does not exceed the initial price by maximum 20 per cent on either side.

The stock exchange, where the SOE plans to sell its shares, must open bidding book for every investor, both public and strategic, in five consecutive morning sessions.

Any investor can change his bid regarding the number of shares and bidding price. That investor must cancel his former bid before making a new one.

According to Nguyen Thanh Long, chairman of the Hanoi Stock Exchange, book-building has proved to be efficient in other markets.

“We expect that method will be another option for SOEs to successfully sell the State owned stakes in their capital,” Long told the online newspaper Thoi bao Tai chinh Vietnam (Vietnam Financial Times).

The method would help determine the initial trading price of the company according to the actual market demand, he said.

“The company and underwriter will have the opportunity to study the market before issuing the shares. The book-building method helps match the share price with the market condition, bringing mutual benefits for the firm and investors as well as increasing efficiency of the capital raising process,” Long said.

The new method was expected to raise the number of successful auctions for SOEs, he added.