Share price challenges Vietcombank

26-Jun-2019 Intellasia | BizLIVE | 6:02 AM Print This Post

In the second half of 2019, a big plan of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) enters a period of attention, according to the target of completion in the year.

This year, Vietcombank continues to sell about 6.5 percent of its shares to foreign investors, in the component of increasing charter capital. It can be seen that this is the implementation of unsold part in 2018, with the guideline and mechanism approved by the authorities and shareholders.

In 2018, until the last working day of the year, the prime minister agreed to the transaction of selling shares of Vietcombank to GIC (investment fund of Singapore).

Previously, right from the beginning of the year, the bank actively organised the introduction and contacted with foreign investors to prepare for the plan of offering 10 percent of the capital increase.

At the general meeting of shareholders in April 2018, Vietcombank leaders said that many investors were interested in the offering. But in the end, the number of successful offers was only 3 percent, with GIC and an existing foreign strategic shareholder Mizuho to balance the ownership ratio.

In 2018, Vietcombank continuously created a new record of profits over each quarter. Bad debt was substantially reduced to less than one percent. The prospect of Vietnam’s first commercial bank achieving “billion dollars” profit also gradually formed.

But why can’t they sell all 10 percent but only three percent?

Before the transaction, a leader of Vietcombank said that when contacting with foreign investors, they were very impressed with the financial indicators and operational prospects of the bank. But there were also obstacles.

Firstly, at that time, most of the potential investors introduced by Vietcombank had new investments in the stocks of Vietnamese banks. A representative of a large investment fund shared that, at that time, those new investments had not been profitable, or were in loss.

This fact made investment funds become more cautious when expanding new items, in addition to to considering the relevant provisioning policies.

Indeed, at that time, if considering the selling price for foreign investors, the market value of bank shares in this flow had fallen deeply. After the year of prosperity in 2017, Vietnam’s stock market began to show many difficulties and adjustments in 2018.

Secondly, due to the large ownership and related assets of the government, Vietcombank had strict regulations on valuation, selling price must not be lower than the average price of sessions determined on the stock exchange. In 2018, share price of Vietcombank (code VCB) was priced at over 60,000 dong per share.

Vietcombank’s leader also discussed that the high price of VCB made it difficult to sell. Meanwhile, investors must be bound by restrictions on transfer within one year.

Finally, closing in 2018, as above, this bank also successfully sold three percent for 55,800 dong per share. And that also earned a large surplus.

In 2019, selling price still continue to be obstacles

Although only short-term and timely, VCB is the only case of Vietnamese banking stocks that has brought high profitability rate for foreign investors in the last two years.

From the beginning of 2019, especially in the period of going against the recent downtrend of the market, VCB price is aiming to create a new peak of the year, reaching 71,000 dong per share last week.

This is also one of the large stocks on Vietnam stock market, creating the leading growth in market price from the beginning.

And once again, will high stock price make difficult for Vietcombank again to sell stocks?

There are many factors that shape investor decisions. Market value of stocks is only a part. But with Vietcombank it becomes extremely important, because the selling mechanism clearly defines the reference factor as the average price of sessions determined on the stock exchange.

Looking at the case of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), the information of selling 17.65 percent of shares to KEB Hana Bank (Korea) was launched from the beginning of Q3/2018 but it has not been realised yet. According to recent updates, mechanism points almost completed, but the remaining problem is mainly the selling price.

With Vietcombank, Nghiem Xuan Thanh, Chair of the Board, stated that the implementation of the plan had rules, objective and transparent mechanisms according to the market. The selling price was also marketable. The bank always asserted its compliance with regulations and mechanisms, as well as promoting its business most effectively.

That effect also contributed to shaping stock price on the stock exchange. In 2019, Vietcombank had many good prospects. At the end of the first five months of 2019, that bank reached about 9 trillion dong of pre-tax profit. Non-performing loan ratio continued to be controlled below one percent and especially provision for bad debts exceeded 170 percent.

Vietcombank’s leader estimated that profit in 2019 could reach over 20 trillion dong. The result might even be higher than the plan, as the bank almost maximised the scope of bad debt identification to make provision, so it was difficult to increase further. Meanwhile, credit and service activities were still growing as expected. Even credit loan could be increased after applying Basel II and the high implementation rate after six months.

It was possible that good business results and prospects contributed to shaping the price of VCB rising on the stock exchange. However, was that once again an obstacle to the upcoming capital sale plan? This is still unknown.

As for the general comment on that offering, a leader of Vietcombank said that basically, the plan to sell capital in 2019 was still favourable.


Category: Finance, Vietnam

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