Issuance plans sometimes pressure 'small' investors
In the context of impressive growth of the stock market, many companies have flocked to issue shares to raise capital, but not all achieve the expected result.
The first half of 2021 witnessed positive movements of the Vietnamese stock market with significant liquidity. FiinGroup statistics show that in 2021, listed companies plan to increase their equity size by 3.8 per cent, equivalent to VND102.6 trillion (US$4.5 billion) through share issuance, a record so far.
From the beginning of this year, they have successfully issued about VND20.3 trillion and are planning to issue more than VND82.3 trillion in the year-end period.
When companies announced their issuance plans, stocks in the banking and securities groups attracted great attention from investors, because the increase in capital would help the bank ensure the capital adequacy ratio (CAR), helping securities companies increase their lending capacity, thereby quickly improving market share and profits.
Stocks of banks and securities companies have attracted strong cash flow and have been the best growth industry groups since the beginning of the year.
Contrary to the success of securities and banks, some enterprises in other fields have not yet witnessed positive results.
Dat Xanh Group Joint Stock Company (DXG) recently announced a plan to privately issue 200 million shares, accounting for 38.59 per cent of the company's outstanding shares.
The issue price is determined with a 20-per-cent discount of the average closing price of DXG shares in the last 20 trading days before the time the Board of Directors decides the specific issue price.
The market price of DXG at the time of announcement was VND28,000 per share, so the issue price would be at VND22,000 per share.
Together with the private placement, Dat Xanh also plans to issue an ESOP of 7 million shares at the price of zero Vietnamese dong.
As soon as the issuance plan was announced, DXG shares were sold strongly by investors and even fell to the floor price in two consecutive trading sessions of June 8 and June 9. The market price of DXG at the end of the trading session on June 9 was only VND24,100 per share.
Rang Dong Light Source and Vacuum Flask JSC (RAL) announced the plan to issue 11 million shares to existing shareholders, equivalent to 91.1 per cent of outstanding shares of the company, with an aim to build a factory in Ha Noi’s Hoa Lac Hi-tech Park.
The issue price is determined to be 65 per cent of the average price of 20 consecutive trading sessions before Rang Dong's announcement date and not less than VND110,000 per share.
At the time of announcement, RAL's market price was around VND220,000-230,000 per share, which means the issue price would range from VND140,000-150,000 per share.
An issue price of up to “three digits” as in Rang Dong's case can be considered a record high and this causes many obstacles for shareholders. If a shareholder has the right to buy 1,000 shares, he will have to spend hundreds of millions of dong and this is not a small number for many investors.
Although the issuance plan would help Rang Dong ensure financial resources to build a new factory, in the short term, many investors rushed to sell RAL shares, causing RAL to drop by nearly VND30,000 or 13.3 per cent after only two trading sessions.
Earlier in May, Binh Thanh Import - Export Production & Trade JSC (GIL) stunned investors as it offered a plan to privately issue 16.8 million shares to investors at a low price of VND35,000 per share, while the market price of GIL at that time was up to VND80,000 per share.
After the plan, GIL prices on the stock market reversed with strong selling volume and the stock market price is now below VND60,000 per share, a deep decrease compared to the time before the plan.
The issuance plan for existing shareholders can sometimes pressure "small" shareholders because they will have to pay more money, while it takes a long time for the business to prove its effectiveness from the mobilised capital, except for some cases where the effectiveness can be seen immediately such as securities and banking groups.
This is a big barrier since individual investors do not often stay persistent in accompanying businesses. Many investors often use high margin, so when the companies announce the issuance plan to existing shareholders, these investors rush to sell shares because they face difficult financial arrangements in the short term.