The phenomenon of companies listed on the Vietnamese stock market offering massive numbers of additional shares has been sarcastically branded the “selling paper for money" technique. Some businesses have even been called “king of waste papers!”
It is not very difficult to understand investors’ complaints about excessive additional share issues of listed companies in the event of weakening cash flows on stock investment forums. The stock market is a fundraising channel, especially when the interest rate is too high, and many companies are trying to cash in on this advantage.
It is not very difficult to understand investors’ complaints about excessive additional share issues of listed companies in the event of weakening cash flows on stock investment forums. The stock market is a fundraising channel, especially when the interest rate is too high, and many companies are trying to cash in on this advantage.
However, while the capital of investors, especially individual investors, is being eaten away day after day because of market declines, statements on unrealistic seasoned share issues distress investors.
Since early April, many listed companies had to extend the deadline for purchasing additionally issued shares. This phenomenon also occurred earlier this year when the offering price was even higher than the market value. Learning from this experience, capital raising plans of many companies have been changed to pay share dividend or offer shares at par value. But, repeated extensions of the deadline for purchasing shares indicate that it is not easy to draw more capital from investors.
Not long ago, the Ho Chi Minh City Stock Exchange (HOSE) announced that De Tam Joint Stock Company (ticker: DTA) extended the deadline for depositing money for purchasing shares at its secondary equity offering to July 4, 2011. DTA planned to issue shares at an exercise ratio of 2:1 and the time for settling payments for the purchase stretched from April 4 to May 5. When the SEO plan was made public, DTA shares were trading around the par value of VND10,000 per share. On April 26, anticipating that market price was unlikely to go up, the Board of Directors of De Tam Joint Stock Company applied for an extension until June 24. The State Securities Commission of Vietnam (SSC) even added more days for the company. However, DTA shares closed at just VND7,900 per day on May 10.
Cases like DTA are not at all rare. Petroleum Equipment Assembly and Metal Structure Joint Stock Company (ticker: PXS) offered shares to existing shareholders at par value. Dilutive prices fell to the region of VND12,000 per share. Unfortunately, when the deadline is nearing, the market price sank close to the face value of VND10,000. PXS had to extend the deadline twice, with the last date of the second extension falling on May 4. It is unclear that how successful this seasoned equity offering is when the market price of the share is hovering at VND11,000. Actually, many investors cannot be happy with the falling prices of PXS shares.
Shareholders strongly protested fundraising plans offering shares to existing shareholders in recent annual general meetings. Viet Nam Golf Tourism Joint Stock Company or Vinagolf (ticker: VNG) last week sent a document to HOSE cancelling the record date (the date established by an issuer of a security for the purpose of determining the holders entitled to receive a dividend or distribution) for the seasoned equity offering. Before that, its shareholders voted against the plan to raise the authorised share capital from VND130 billion to VND200 billion. Binh Chanh Construction Investment Shareholding Company (ticker: BCI) decided to cancel the plan to issue 3 million shares to employees, because employees did not register to buy shares at VND20,000 per share, although the market price of BCI shares was at VND25,000 per share.
However, not all general shareholder meetings are able to vote against these fundraising plans. PetroVietnam Construction Joint Stock Corporation (ticker: PVX) is an example of a contradictory capital-raising plan. The corporation planned to double charter capital this year by offering shares, mostly at par value. The company planned to sell 12.5 million shares to employees without any restrictions on transfer and offer 100 million shares to strategic shareholders at a minimum price of VND12,000 per share, but the transfer restriction is limited at only one year.
The annual shareholder meeting of Cotec Investment and Land-house Development Joint Stock Company (ticker symbol: CLG) held on May 8 voted to cancel the plan to raise charter capital approved by the General Annual Meeting 2010. Instead, CLG may issue guaranteed corporate bonds worth VND200 billion in private placement or issue convertible bonds valued at VND100 billion.
Convertible bond issues are currently more accepted by investors than SOE plans because they can decide to convert bonds into shares or not, depending on share values at the time of conversion. However, if the market price is lower than the conversion price, the plan goes bankrupt. Thus, if lacklustre performance persists, companies must try their utmost to respond to worst scenarios.
Saigon Securities Incorporation (SSI) is an example of refunding as none bondholders registered to convert bonds into common shares. Saigon - Hanoi Commercial Joint Stock Bank (SHB) has not yet announced the results of bond conversion, although the deadline May 5 came and went. Refrigeration Electrical Engineering Corporation (REE) will see the deadline of conversion of corporate bonds in August. It is difficult to forecast whether this case is successful, with a conversion price around VND13,800 while the current market price is just VND12,100 per share.
Seasoned equity offering plans are usually attached to big development and investment plans. However, many investors expressed their concern over the effective use of the proceeds because some companies reportedly use the money to settle debts. A company listed on HOSE on May 4 reported VND145.01 billion raised from SEO and 76 percent of it is used to pay debts.
The demand for capital increase by listed companies is often huge, especially in the context of production expansion. For shareholders, the most important factor is how effectively the capital is used and when the fundraising plan is executed. In an uptrend market, an SEO plan is a driving force for share prices to go up.
On contrary, low liquidity and dropping stock prices will intensify pressures on market prices. When a company is listed, an SEO plan will be reached in most cases. For shareholders without desire to purchase the shares, their only way is to abandon shareholder rights before the record date.
VNE
Vietnamese
