REE placement for strategic shareholders

Refrigeration Electrical Engineering Corp (REE) and Bao Viet Securities Trading Co (BVSC) held a press conference last Wednesday October 12 on the issuance of an additional five million shares. Nguyen Thi Thanh Mai, director of REE and Nguyen Quang Vinh, director of BVSC, talked about the share issue in the following interview.
- Nguyen Thi Thanh Mai, director of REE talked about the purpose and the advantage of the issue as follows:
What is the advantage of separately issuing shares to strategic shareholders? Why does the board of REE choose this method after many times changing the issuance method?
Before choosing the separate issuance or directly selling shares to strategic shareholders, REE had considered the method of issuing convertible bonds to foreign shareholders. However, some said the government would issue a decision increasing the ownership rate of foreign investors from 30% to 49% earlier than expected, so we didn’t choose this method. However, the choice of issuing shares to raise capital has faced many difficulties due to the effect of many factors, including the quick change of the share price in the stock market, the timing of the share issue, which must suit expected government policy changes, and the effects of REE share price on the VN Index. Moreover, this is the first time a listed company issued shares to raise a big amount of capital through the stock market.
It took the managing board of REE two months to choose the most feasible method of issuance to raise capital for our second property e-Town 2. In fact, the separate share issuance or directly selling shares to strategic shareholders with the price of 32,000 dong per share was signed between REE and BVSC on September 6 when the price of REE share in the stock market was 28,700 dong per share, lower than the price sold to strategic shareholders.
I think REE has achieved a great success in the share issue to raise capital for e-Town 2 as REE had chosen the method of separately issuing shares to potential investors. The issue has positively affected the stock market in general and the price of REE shares in particular.
Under the resolution of the shareholder meeting in April 2005, the additional capital needed for e-Town was 100 billion dong. The company had already paid 40 billion dong. How much has the company additionally paid?
The additional loan of 100 billion dong funded for e-Town 1 has a duration of seven years with a two-year grace period. So the loan principle would be paid over five years at about 20 billion dong a year or five billion dong per quarter. If adding the profit of REE and the discount of e-Town 1, the company can pay the whole loan of 100 billion dong. However, like any other business, REE needs operating capital, so the loan is paid annually as planned. By now, the company has paid another 30 billion dong.
What are the difficulties of the implementation of e-Town 2 project when facing the current frozen real estate market? What measures has REE launched to attract customers to rent e-Town 2?
The frozen real estate market refers to the trading activities of property. But e-Town 2 is for the office rental market. Currently, this market still has very good potential. Although e-Town 2 is in the beginning stage of construction, some customers have already booked space. Many of them are traditional customers of REE who are renting offices in e-Town 1 and now they want to expand their office area. Current rentals of e-Town 1 is US$14 per square metre compared to US$25-26 per square metre in central areas while the office quality is the same. This presents a competitive and attractive pricing structure for tenants.
How does the company plan to pay dividends after the issue of five million shares while e-Town 2 is under construction?
With additional capital of 160 billion dong, the company will keep the dividend rate as announced at 14% in 2005 and pay in cash instead of paying 50% in cash and 50% in shares. The dividend payment during the construction of e-Town 2 won’t be affected, as the annual profit of REE is enough to pay all dividends.
- Nguyen Quang Vinh, director of BVSC talks about the reason why REE share is underwritten at the price of 32,000 dong per share.
Many investors and experts said the price of REE shares was lower than its inherent value for a long time. As a professional consultant and investor, is this true?
Before offering the underwriting method of separately issuing shares to strategic shareholders, BVC had chosen the first method of issuance in accordance with Decree 144/2003/ND-CP or underwriting the whole share issue at a price of over 25,900 dong per share. However, at that time, REE shares were trading at a very low price of between 25,000-26,000 dong per share, so we decided to re-evaluate the price of REE shares. After thorough consideration, BVSC has defined the real value of REE share of 33,000 -35,000 dong per share. Therefore, we have increased the price of shares issued to strategic shareholders up to 32,000 dong on September 12. At that time, REE shares were trading at 28,700-28,800 dong.
How does the method of separately issuing shares to strategic shareholders benefit existing REE shareholders?
The State Securities Commission said it highly appreciated the method of the separate share issuance by REE. With a price of 32,000 dong per share, which is close to its price in the stock market, has brought in 160 billion dong out over the total planned investment capital of e-Town 2 of 250 billion dong. In the stock market, REE has not sold preferential shares to existing shareholders. This has kept REE shares stable and ensured equilibrium in supply and demand on the trading floor.
Are there any stipulations on the time limit that strategic shareholders must hold their REE shares? If they are allowed to sell REE share when the SCC accepts to list five million shares, how would that effect the price of REE shares? Is the sale of shares focusing on eight strategic shareholders considered as a controlling transaction?
As REE has been listed in the stock market, strategic shareholders can sell shares when the SCC allows the listing of any new shares on the stock market. Strategic shareholders are prestigious companies, contributing to the development of REE, so they are long-term investors. I think that in the short term strategic shareholders won’t sell off their REE shares on the stock market [when the shares are listed]. An additional five million shares only accounts for 30% of the total REE shares listed on the stock market. So if these shares are sold to five or seven large shareholders, they cannot have majority control as regulated in the Decree 144.

 

Category: Stocks