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Gloomy stock market makes share issuances unsuccessful
The falling stock market has made a lot of share issuances fail or delayed them, which has resulted in missed business opportunities and unfinished business plans.
On July 14, 2008, the February 3 Construction Company held a share auction at the HCM City Stock Exchange (HOSE). 5,634,500 shares were offered, but only 98,100 shares were registered for purchase by seven investors. Finally, only 79,100 shares were sold, 1.5% of the offered volume.
On September 30, the company once again held a share auction, during which it tried to sell 5,555,400 shares left from the previous auction. Though the set starting price was lowered to VND10,000, equal to face value (the starting price of the previous auction was VND10,200/share), only two investors registered to buy shares, and only 13,000 were sold.
The current situation proves to be quite different from one year ago, when capital mobilisation in the stock market was very easy. At that time, investors had a lot of money and they needed something to invest in.
According to a report released by HOSE, the share auction of Minh Hai Housing Development Company scheduled for earlier this week was cancelled as there was only one registered investor, Vincom Securities Company.
Other share auctions have attracted more investors, but the share issuers were not able to mobilise the desired volume of capital. The share auction of Duyen Hai Food Processing and Feed Company, for example, drew the participation of 63 investors, but only 22% of the offered volume was sold. At the share auction of the Southern Waterway Corporation, only 16% of offered shares were sold, while there were 61 registered investors.
According to the State Securities Commission (SSC), the total volume of capital enterprises mobilised from the stock market in the first eight months of this year was just equal to 20% of the approximate VND 90tril mobilised in all of 2007.
SSC Chairman Vu Bang said that enterprises should consider share issuance plans thoroughly at this moment, when the stock market is falling down, in order to avoid the so-called ‘share dilution’ effect, which makes it more difficult to mobilise capital.
Nguyen Bang Tam, Chairman of the Binh Thanh Import-Export Production and Trade Company (Gilimex), Deputy Chairman of the Club of Listed Companies, said that if enterprises issue shares unsuccessfully, their prestige could be hurt.
“Investors now think carefully before making investment decisions. They only inject money in feasible projects. They will not purchase shares if the expected dividends are below 20%, even if the share prices are very cheap, equal to face value,” Tam said.
“However, high dividends put a lot of pressure on share issuers,” Tam added.
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