Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Hanoi Beer Alcohol & Beverage JSC, or Habeco, filed last week for a listing on the Ho Chi Minh Stock Exchange as Vietnam tries to get more companies out of government hands.

Four days later, state-controlled Vietnam Dairy Products JSC, known as Vinamilk, made a secondary offer to increase foreign ownership. The deal missed its target and Singapore's Fraser & Neave Ltd., another beverage company, bought two-thirds of the shares.

Habeco, and many other planned privatizations in Vietnam, could easily share Vinamilk's fate. While the nation is trying to lure international institutional investors, restrictions on foreign ownership that curb liquidity for most stocks is keeping them at bay. Or worse: After almost 10 years of pouring money into Vietnamese shares, foreigners are leaving.

Bowing Out
After almost a decade of steady inflows, foreign investors sold more Vietnamese stocks than they bought this year
Source: Bloomberg;

The irony is that this comes a year after Hanoi passed Decree 60, which allows companies to increase foreign ownership beyond the 49 percent cap enshrined in securities law. The follow-on offering by Vinamilk was possible because it was one of a handful of companies that applied to have the ceiling lifted. Instead of attracting a throng of fund managers, however, the biggest component of the Ho Chi Minh index got itself a strategic partner in F&N -- which will probably keep the shares locked in a drawer, doing nothing for liquidity.

Behind the reluctance of companies to lift the cap, and of foreigners to buy into them, is a legal dispute on where exactly the line is drawn. The new rule isn't applicable to companies in 14 "conditional sectors," and there are more than 250 activities that fall within the restricted areas. Depending on the interpretation, even Vinamilk's increased ownership could be challenged.

Wasted Potential
Vietnam saw about $1 billion in share offerings in each of the past two years even as the Ho Chi Minh index rose almost 20 percent in the period
Source: Bloomberg

Aside from limiting foreign interest in the market, the ceiling is probably part of the reason Vietnam hasn't been upgraded to emerging-market status, from frontier, by MSCI. 

With the likes of Fidelity Investments limiting their participation in Ho Chi Minh, companies vying to sell shares are hostage to retail investors and multinationals eyeing a port of entry into Vietnam. In Habeco's case, giants such as Heineken NV or Carlsberg A/S could end up playing an important part in the listing, keeping the company's free float small. 

If Vietnam wants international investors, and is determined to win emerging status with MSCI, regulators need to make up their minds on allowing companies to be open.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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