Easy to Become Board Member?

Prices of most listed shares in Vietnam dropped sharply in the past months and a majority of them are valued low in relation to corporate assets and earnings prospects. According to experts, this is a golden opportunity for some investors to take part in the Board of Directors and Supervisory Board in target companies and this is also a great opportunity for value investments.

 

However, in consideration of precaution, capital preservation as well as easy ability to participate in the Board of Directors and Supervisory Board, the Vietnam Financial Investors Association (VAFI) said that stock investors, especially individuals, need to choose listed companies whose registered capital ranges between VND100 billion and VND150 billion, whose book value is 1.5 - 2 times higher than the registered capital. These companies must have medium or good average business performance in the latest seven years with annual net profit growth of 20 - 30 percent and have low debt-to-asset ratio, with total bank loans expected at 50 percent or lower of owner’s equity. These indicators demonstrate medium or good business administration of listed companies. Business performance is not much affected in the current context and profits are potentially large when the macroeconomic situation improves.

 

Especially, according to the VAFI, investors should consider the value of intangible assets (little reflected on book value) like land-use rights and architectural works.

 

It is relatively easy to take part in the Board of Directors and the Supervisory Board of a company in the current context. For instance, a listed company satisfies these conditions with a registered capital of about VND130 billion, an owner’s equity of VND270 billion, an EPS ratio of 35 percent, an annual cash dividend of 20 percent, and a market price of some VND10,000 (companies of this sort are not rare on the stock market), institutional shareholders do not hold a high proportion of stake. Institutional shareholders and members of the Board of Directors keep from 20 percent to 40 percent of stake, and the rest is held by individual investors.

“Regarding this sort of company, a shareholder only needs some 7 percent stake to become a natural member of the Board of Directors and the Supervisory Board without any need of support from the Board of Directors and other investors. Given the current stock market performance and share prices, a shareholder needs only VND9 billion to realise the intention. If two shareholders pool capital, each will need only VND4.5 billion to win a seat in the Board of Directors and a seat in the Supervisory Board. According to the law, a group of shareholders with at least 5 percent of ownership is entitled to nominate representative candidates to the Board of Directors and the Supervisory Board, the VAFI said.

 

Notably, if cooperation is extended, a small group of investors can easily hold controlling stakes or hold “veto” shares or take part in the Board of Directors and the Supervisory Board in many companies.

 

In general, it is not difficult to purchase less than 10 percent of stake in aforementioned companies and it is much easier than the M&A form, according to the VAFI.

 

When a shareholder has a seat in the Board of Directors or the Supervisory Board, he/she will have huge benefits. If his/her investment decision is right, dividends received may be significant, possibly five times higher than property leasing. In addition, he/she will be paid monthly remuneration, with a combined value reaching VND30 - 90 million a year. He/she can keep many positions in the company like spokesman, investor relations staff, etc.

 

In case he/she fails to acquire enough shares to book a seat in the Board of Directors and the Supervisory Board, he/she can sell his/her share at a positive margin if market prices go up.

 

However, some stocks have dropped sharply and prices are far below par value of VND10,000 per share but this does not means such companies are cheap, because many of them are the product of weak governance, excessive debts and loss-making operations. So, investors must take heed when they target such companies.