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More shares to be issued, more pressure on stock market
A lot of enterprises are planning to issue more shares to raise funds for investment projects, which has raised the concerned that the stock market will be worse off for the ‘share dilution’.
The resolution of Sacombank’s shareholders’ meeting states that the bank will increase its chartered capital by another VND1,600bil ($100mil) to VND6,048bil ($378mil) from VND4,448bil ($278mil) by the end of 2008. In order to reach that end, it will issue 35.9% of its current securities more.
Sa Giang Import-Export Company has also wrapped up a plan to issue more shares in two phases in 2008. In the first phase, bonus shares will be issued to existing shareholders with the ratio of 4:1, while in the second phase, more shares will be issued to increase chartered capital to VND82.4bil ($5.15mil).
Shareholders of the Refrigeration Engineering Enterprise (REE) decided in their recent shareholders’ meeting that they would issue 10mil more shares to raise REELand’s chartered capital from VND200bil to VND400bil, and fund real estate and power projects.
Dung, an investor on VPBS trading floor, said that share issuances at this moment may make the situation worse. He said that companies should pay dividends in cash instead of shares.
In fact, many enterprises have no choice but to issue more shares, though they are aware of the ‘share dilution’ issue. Currently, they are finding it very hard to mobilise capital without issuing shares. As commercial banks have been tightening credit, not every business can get bank loans. Moreover, the overly high lending interest rates have been making businesses hesitate to borrow money from banks.
In fact, businesses have been pushed into a dilemma. Ngo Van Minh from EuroCapital Securities Company said that if businesses issue shares at low prices, they will not be able to mobilise enough capital. If they issue shares at high prices, shares will not be attractive.
Some investors think that enterprises should not pay dividends to shareholders, but should retain the money for re-investment. However, Minh said that the idea is unfeasible, as it would make a company look like it did not have a good business performance the previous year.
Prior to that, in a document, the State Securities Commission advised listed companies to think carefully about when to raise capital and consider delaying stock issuance plans if possible.
Minh said that the most feasible plan for businesses now to arrange enough capital is to sell stakes to strategic partners and institutions which have long-term investment plans in Vietnam. However, in this case, the government will still need to raise the maximum foreign ownership ratio in local companies.
Minh said that in such a difficult circumstance, state management agencies may consider providing more room for foreign investors in order to help the stock market recover.
VNN
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