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Stricter rules likely on private offerings
A proposed change to the Law on Securities aims to tighten controls on private stock offerings in order to prevent share dilution and protect existing shareholders.
Under the draft, a private offering must not take place within six months of any other private offering, and investors who buy share in private offerings will be restricted from transferring the shares for at least one year.
The proposal will also prevent private offerings before an initial public offer (IPO).
"The regulations will reduce risks to existing shareholders and balance the interests of all investors," said Hoa Binh Securities Co deputy director Nguyen Huy Duong.
"Every offering causes dilution," said Mekong Bank Securities Co analyst Hoang Thach Lam. "The thing we should consider is the cost of the dilution."
When a company planned to issue shares to raise capital for a business project, shareholders often voted to approve the executive board's plan. But the issue was frequently for speculators or relatives of board members and would not benefit the shareholders or the company, Lam said.
He suggested that the securities law amendments should force executive boards to publish issue details including target objects and price, instead of submitting a business plan for approval in the shareholder meeting. Shareholders would then be more thoroughly informed and their rights protected.
Lam added that the one-year no-transfer commitment would help spread risk to the new shareholders, who would also face the risk of a drop in share values.
Private offerings currently raise funds from a small group of investors without public disclosure and are generally conducted under exemptions allowed by the State Securities Commission.
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