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Unable to issue shares, businesses borrow money from shareholders
Enterprises have asked shareholders to lend money, their dividends, because they cannot arrange capital for production and business from either bank loans or share issuances.
According to the State Securities Commission, 30 companies had registered to issue shares to increase capital this year, but 10 of them have cancelled their plans.
Sacombank has sought the permission of shareholders to cancel its plan to call for VND1tril worth of capital more from shareholders, its staffs and foreign investors.
The plans by PAN, S12 and BBC to issue new shares have also been cancelled as stock prices have been falling down sharply.
The plan on profit distribution and share issuance by Licogi 12 Company was only supported by 70% of votes during the shareholders’ meeting in May, which was not enough for the plan to be implemented.
The State Bank of Vietnam is keeping strict control over the increases of chartered capital by commercial banks. Banks have to show plans to use the capital to be mobilised and guarantee the effectiveness of the plans. The Ministry of Construction has also released a document in which it says it will more strictly control the securities issuances of enterprises under it.
As lacking capital, enterprises now think of borrowing money from their shareholders.
In April, Dinh Vu Steel Company in Hai Phong city persuaded shareholders to lend 45% of total dividends in 2007 to the company at the interest rate of 1% per month. After that, the company’s plan to issue shares (ratio 1:1) was not approved by the State Securities Commission. And the company, once again, is calling for support from shareholders. Those who want to get back the lent money will receive the money back, while those who agree to keep lending will get the interest rate of 1.5% per month. The principal and interest will be paid on December 31, 2008.
Though considering this a creative solution, Ha Huy Thang, Deputy General Director of Petrolimex, said that the dividends will not be enough to feed investment projects. Dividends just account for 10-20% of companies’ profit, and enterprises still have to rely on bank loans to expand production.
However, the ‘initiative’ by companies to borrow money from shareholders has been applauded by experts. The experts say that this helps companies arrange capital for production and business while not causing share dilution in the market.
VNN
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