Investors Suffer from Disadvantages of Unclear Information

The most common violation in information disclosure is persons in the board of directors or with relationship with members of the board of directors do not announce transaction plans and information as required by the laws. The Hochiminh Stock Exchange (HOSE) has named a dozen of major shareholders, insiders and affiliated persons for not informing of their transactions. Notorious companies with such a violation included MKP, PXT, DQC, CMT, SJS , LAF and ELC. On the Hanoi Stock Exchange (HNX), companies with information violators include AGC, SHN, THV and S74.

 

Typically, Mekophar Chemical Pharmaceutical Joint Stock Company (MKP) bought back its shares for treasury shares from February 3, 2012 to March 12, 2012 with illegitimate volumes and values regulated by the laws. Mr Nguyen Bac Son, member of the Supervisory Board of Dien Quang Joint Stock Company (DQC) - a lamp producer - sold 51,000 DQC shares from December 20, 2011 to on February 6, 2012 without providing statutory information disclosure. Besides, he reported share transaction results behind time.

 

Cooking the books is also a popular scheme used by listed companies in Vietnam. In early March 2012, Song Da 6.06 Joint Stock Company (SSS) was put under the warning status for falsifying profits in fiscal year 2011. The shift from profit to loss was resulted from the rise in administrative expenses and premium costs. Under the current tough time, SSS is not only case that makes loss into profit.

 

Some companies colluded others to increase credits, issue falsified invoices, and revaluate contributed assets in order to increase revenues. VE1, ALP or VST are branded “suspects.” VNECO 1 Electricity Construction Joint Stock Company (VE1) has a high ratio of accounts receivable to sales. Vietnam Sea Transport And Chartering Joint Stock Company (VST) liquidated assets at original costs for VND231 billion in 2011. Alphanam Joint Stock Company (ALP) changed from a loss-making company with a loss of VND133 billion to a profit-making one with an “other profits” amounting VND259 billion.

 

With many sophisticated tactics, the management can easily reduce actual costs.

 

The Inspection Department under the State Securities Commission of Vietnam (SSC) said SSC discovered and fined 35 cases of violations since the start of 2012, including 20 imposed on public companies, five on auditing companies, nine on insiders, and one on fund management company.

 

The public has repeatedly questioned the personal responsibility in information disclosure violation in listed companies but authorities have to date not sought out any effective measure. After all, if the company was fined for information disclosure violation, the first to suffer from disadvantage is investors.

 

According to regulations, a violating company will be first served a reminder, then served a warning, and finally suspended from trading. This causes a pressure on the company’s management to a certain extent but it is not effective when interests of shareholders are not the same. Investors will be at a disadvantage again if shares are served warning or suspended from trading.

 

According to the SSC, there are grace periods for listed companies to submit information later than regulated but the information relating this case must be publicised on the exchange’s website to inform investors.

The stock exchanges are urged to amend and supplement regulations to impose stricter penalties on violators. Companies with repeated violations will be temporarily suspended from trading or delisted.

 

When the Circular 226 on financial safety ratios are effective from April 1, 2012, the SSC needs to strengthen supervision to build a healthy, transparent and sustainable stock market for Vietnam.