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Treasury stocks: Large orders, small purchases
In the last few days, a lot of listed companies have registered to buy millions of treasury stocks from now to the beginning of 2009. Sacombank, for example, has registered to buy 25mil treasury stocks.
Investors hope that the large orders will create a big demand and help refresh the stock market. Meanwhile, they also fear that the companies have just registered to buy, but have no intention of doing so.
The virtual demand?
Investors have every reason to worry that registered companies will not buy the stocks they are promising. In mid 2008, when the stock market fell down dramatically, it was estimated that some 50 companies registered to buy treasury stocks in order to stabilise prices. However, the companies did not purchase, or just purchased smaller volumes than the volumes they registered to buy.
The Saigon Securities Incorporated (SSI), for example, just purchased 1.7mil of the 3mil stocks it registered to buy. Ha Tien 1 Cement Company (HT1) purchased 48,000 of the 300,000 shares it registered, while Vien Lien Joint Stock Company (UNI1) 17,536 of 234,580. Khanh Hoi Import-Export Company (KHA) registered to buy 700,359 treasury stocks but purchased 423,260 only.
Meanwhile, Chang Yih (CYC) did not purchase any stocks though it announced it would purchase 158,000.
The companies have cited a lot of reasons to explain why they did not fulfill their promises. Some said that they needed to use the money for investing in other projects, while PPC said its board of directors did not accept purchases of stocks at more than VND30,000/share.
The distrust
It is clear that investors have been suffering from the listed companies’ moves. Le Dat Chi, a securities expert, said that if listed companies announce plans to buy treasury stocks, investors understand that the demand for the shares will increase, and they make investment decisions accordingly. However, in fact, this is just ‘virtual demand’ which certainly badly affects investors’ business.
Tran Ngoc Nam, a securities analyst, said that a company stopped purchasing stocks at the end of September, but it only announced that at the end of October. As a result, investors were still making investments based on inaccurate information for one month.
Under current regulations, listed companies just need to inform the HCM City Stock Exchange and Hanoi Securities Trading Centre if they want to stop purchasing treasury stocks, while they are not punished for this.
Dr Le Tham Duong from HCM City Banking University said that if the law continues to allow companies to do that, things like this will happen again.
However, Duong said that if companies keep breaking promises, investors will lose confidence in them, which is more valuable than money.
Tien Phong
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