HANOI (Reuters) -Vietnam's IPO market is heating up, fuelled by a share rally, regulatory changes and a credit splurge, but has failed to stir fresh interest from foreign investors despite the prospect that the market could be upgraded by index provider FTSE Russell.

Last week brokerage Techcom Securities, a unit of private lender Techcombank raised $410 million, pointing to a company valuation of $4 billion and marking one of Vietnam's largest initial public offerings in recent years.

That was worth nearly half the value of the combined 36 IPOs so far this year in Malaysia, Southeast Asia's largest IPO market based on the value and number of deals, according to data provider LSEG Workspace.

Vietnam-focused private equity fund Dragon Capital forecast at the start of the year that 13 companies, including Techcom Securities, would go public in Vietnam by 2028. It said the companies would have a projected combined market capitalisation of up to $47.5 billion, roughly 14% of Vietnam's current market value.

There was just one IPO in Vietnam in 2024 and three in 2023.

The share rally and a regulation adopted this month to shorten listing procedures, are stoking the enthusiasm, said Nguyen The Minh, head of research and development at Yuanta Securities Vietnam, a brokerage.

STOCK MARKET RALLIES

The Vietnamese index has surged 29% so far this year, Southeast Asia's best-performing stock market, LSEG data shows.

"If firms had plans to launch IPOs, they don't want to miss this wave," Minh said.

Vinpearl, the resort arm of Vietnamese conglomerate Vingroup, raised approximately $190 million in an IPO in May, returning to the market after having been taken private over a decade ago.

In recent weeks, the agriculture unit of steelmaker Hoa Phat Group and the securities arm of lender VPBank have announced plans for IPOs.

Other potential listings could include the largest securities firm by market share VPS, and Long Chau pharmacy, a unit of tech firm FPT, Dragon Capital says.

The market boom is partly supported by a credit splurge, including margin financing, that has prompted concerns the debt could fuel asset-price bubbles. Vietnam's credit-to-GDP ratio is already more than three times the median of emerging and middle-income economies.

The IPO push of securities firms is driven by their need for additional capital to meet new regulatory requirements and to support margin lending, said Hoang Huy, equity strategist at Maybank Securities Vietnam.

FOREIGN INVESTORS REMAIN CAUTIOUS

The possible upgrade of Vietnam's stock market by index provider FTSE Russell to emerging market status, from frontier market - which could be announced as early as next month - has also increased interest, several analysts said.

The World Bank estimated that about $5 billion of net foreign inflows, both from passive and active investors, could be recorded before and after the upgrade.

However, foreign investors have decreased their exposure to the Ho Chi Minh City bourse, the country's largest, this year by about 90 trillion dong ($3.4 billion), pushing foreign ownership down to around 15.5% of the total this month from 17% in 2024 and nearly 19% at the end of 2023.

"Foreign investors are selling due to concerns over exchange rate volatility and to lock in profits following the strong performance of the Vietnamese index, but this does not necessarily mean they are fully divesting from Vietnam," said Maybank's Huy.