In the past three years when the Vietnamese stock market picture is lacklustre and volatile, listed companies find it harder to raise funds on the market than in the 2005 - 2007 period. But, the unlisted market, commonly known as OTC (over the counter) market, presents an interesting paradox, against all international practices: Share price of some listed companies is much higher than that on listed markets.
What companies catch the interest?
According to the Vietnam Association of Financial Investors (VAFI), in some cases, unlisted companies are valued much higher than listed ones because owners of such companies decided to sell his entire companies or sell controlling shares to foreign or domestic strategic investors (strategic investors are referred to investors operating in the same industry as the sold ones); or subsidiaries of listed companies or unlisted companies are sold in entirety or in part but with controlling percentage to domestic or foreign strategic investors in order to restructure their parent companies.
In addition, some foreign investment funds also seek to buy shares at higher prices in potential firms and support them to develop with fresh financial sources on hopes that these companies will find out suitable foreign strategic investors in the coming time.
Currently, according to VAFI, interested companies only need to have good output markets. In many cases, current profitability is not necessary. For example, apparel and footwear companies usually have low profitability, even suffer loss, but they are still acquired at a value above the book value. The value of these companies usually includes land-use rights, machinery and personnel training costs. M&A is normally seen in apparel, footwear, cement, consumer goods, mining, real estate, consulting and design industries.
VAFI said many listed companies are still controlled by the State because they went public from State-owned enterprises. This is a barrier to strategic investors. Share prices of these companies are not high even though they make huge profits. Management boards of many companies do not want to sell controlling shares to strategic investors, even they are struggling to overcome financial difficulties or facing bankruptcy.
In addition, foreign ownership ratio in some types of companies is limited at 30 per cent or 49 per cent of the stake. This is also the barrier to raise funds and attract foreign strategic investors. Limited ownership room is also a major impediment to make a change in shareholder structure.
In addition, completing an M&A deal with a listed company is very complex.
Delisting to attract strategic investors
VAFI said if the value of an unlisted company is higher than that of a listed one, good-performing companies do not want to float their shares on the stock exchange because they can still do this off the exchange. Besides, they can seek attract strategic investors much more easily. In reality, many companies voluntarily delisted their shares from the official exchanges not because they are disqualified for the continued listing but they want to attract more capital and strategic investors more easily.
According to VAFI, to deal with this shortcoming, procedures should be streamlined and reformed to lift barriers to shareholder structure change.
VAFI said that Vietnam needs to create a legal framework to improve the quality of shareholders to reach international common practices. Accordingly, in big companies, institutional shareholders must be the majority shareholders and the State will not hold controlling power or not hold any shares, except for sensitive business. In the near term, according to the governmental regulations, central and local governments and SCIC (State Capital Investment Corporation) should quickly divest from industries the State do not need to hold the stake. It will not be difficult to sell the State equity to strategic shareholders for the time being.
Particularly, there is a need to strengthen strategic shareholders in order to change or support the change in corporate governance method and help companies with consumption markets. Policymakers should draw experience from gains and pains from policies issued to make better policies in the future. In fact, many private business owners get rich, avoid bankruptcy, find export markets or raise handsome capital after they sell their companies to foreign investors. This can hardly happen if those companies are listed on the stock market.
Quynh Anh
Vietnamese
