A lot of businesses submit to shareholders’ meeting the plan to issue shares at knock-down prices in order to seek more capital for their operation. However, instead of issuing shares to existing shareholders, they plan to sell shares to the outsiders. Are businesses really thirsty for capital?
The fact that listed companies rush to issue shares at low prices remains enigmatic to both experts and investors.
Three years ago, TRI, a drink company, stirred up the public when issuing 20 million shares at 7520 dong per share, which was lower than the face value and lower than the market price of TRI shares at that time.
However, issuing shares at low price has become no more a surprise. Truong Thanh Wooden Furniture Corporation (TTF), Rong Viet Securities Company (VDS), Thai Hoa Vietnam (THV), De Tam Joint Stock Company (DTA) are also considering selling shares at the prices lower than the face values.
TTF plans to issue 15.6 percent of shares at 5000 dong per share, which was lower by 2500 dong per share that the market price on June 22. VDS plans to issue 35 million shares at 7000 dong, which is higher by 1700 dong per share than the market price, but lower by 3000 dong than the face value.
Meanwhile, THV is considering issuing 42 million shares at 6000 dong per share, while the current market price is 2000 dong. DTA plans to issue 5 million shares at 7000 dong per share.
The boards of directors of the companies tried to persuade the shareholders that it’s really necessary to issue shares, though at low prices, to slake their thirst for capital.
However, analysts have pointed out that the explanation is unreasonable. In fact, they should not put a high hope on mobilising capital, if they do not intend to issue shares to existing shareholders, while cheap shares (the prices are lower than the face values) have been numerous on the market.
VDS, for example, has stated in its shareholders’ meeting resolution that it would offer to sell 35.02 million shares at the starting price of 7000 dong to strategic partners, while DTA would issue 5 million shares.
Explaining the set low prices, VDS said that it would be very difficult to persuade investors to buy shares at this moment, if the share price is as high as the value.
Le Dat Chi, a well-known economist of the HCM City Economics University, said he is really surprised about the move by enterprises to issue shares at this moment.
He emphasized that it would be a big blunder for businesses to issue shares in the context of the current bad market conditions. “It seems that Vietnamese businesses are going contrary to the basic principles when they try to issue shares at the time when the prices keep decreasing,” he said.
“I believe that no business in the world chooses to follow that way. What’s behind the businesses’ move? What do they target to, a takeover?” Chi questioned.
Another special feature of the share issuance plans, according to Chi, is that shares would not be issued to existing shareholders, but to new shareholders, which could serve as the plan to take over businesses.
For example, if businesses issue 30 billion dong worth of shares and sell at the prices lower than the face values, at 6000 dong per share, investors would have to pay 18 billion dong only to obtain 20 percent of the stakes of businesses. Meanwhile, it would take them much time to collect shares on the stock market.