* Vinalines sells only 1.11 percent of the shares offered
* Demand bleak amid shipping sector woes -CEO
* To list shares on local market within the next three months
* Vinalines IPO flop will not impact govt's privatisation push (Adds comment from Finance Ministry official)
HANOI, Sept 5 (Reuters) - Vietnam National Shipping Lines, a state-owned shipping firm also known as Vinalines, raised a meagre 54.3 billion dong ($2.33 million) from an IPO, far below its target of 4.89 trillion dong, the Hanoi Stock Exchange said on Wednesday.
The flop comes amid a weakness in the country's equity market, which has come off record highs hit this year, and a sharp drop in the shares of recently listed state-owned firms.
Vinalines managed to sell only 5.43 million shares in its IPO at an average price of 10,002 dong apiece. It had sought to sell 488.82 million shares, a 34.8 percent stake, and raise about $210 million, bookrunner Saigon Securities had said.
"Though Vinalines' business performance has improved recently ... the shipping industry hasn't got out of a time of crisis," CEO Nguyen Canh Tinh told local media. "This is why the IPO didn't attract investors in the short term."
Vinalines reported a net profit of 748 billion dong last year, up 92 percent from 2016, after suffering losses in the early 2010s when several of its executives were jailed for mismanagement and embezzlement.
The outlook, however, continues to be muddy for the broader shipping industry that has been in a crisis for a decade with an oversupply of vessels triggering a wave of bankruptcies.
While the sector is now recovering, there are fears trade disputes, especially between the United States and China, will lead to another global downturn before it has had a chance to fully heal.
Vinalines sold its shares to 39 individual investors and two corporate investors in the IPO. Foreign investors bought 6,200 shares.
The firm's stock will be listed on a local stock market within the next three months, CEO Tinh was quoted by state-run Giao Thong newspaper as saying.
VIETNAM'S PRIVATISATION DRIVE
The float is part of Vietnam's ambitious plans for IPOs for 64 state firms this year, as it looks to fill government coffers at a time when public debt levels are nearing the mandated ceiling of 65 percent of its gross domestic product (GDP).
The Vinalines disappointment will not have an impact on Vietnam's privatisation push, said Dang Quyet Tien, head of the Finance Ministry's corporate finance department.
The failure was due to "poor preparations", he said, adding: "The government will continue its efforts to privatise state-owned enterprises (SOEs) and list them on the stock market."
"Turning SOEs into public companies will improve their performance and transparency, and that will help us sell more of their stakes after they are listed," Tien told Reuters on phone.
However, shares of several SOEs have cratered after their IPOs, in a broader market that has shed 19.4 percent since hitting a record in April amid concerns over trade tariffs and their impact on the economy. The index was Asia's top performer with 48 percent gains in 2017.
Shares of Binh Son Refining and Petrochemical, for example, have fallen 48 percent since a debut in March, while PetroVietnam Power Corp has dropped 22 percent. ($1 = 23,313 dong) (Reporting by Khanh Vu, additional reporting by Henning Gloystein; Editing by Himani Sarkar)