Increasing capital by issuing bonus shares is no longer considered unattractive to stock investors in Vietnam this year.
At the Annual General Meeting in 2010 held by Sacombank, the fourth largest listed lender on HOSE, several shareholders expressed their desire to receive dividend in cash rather than shares as well as the issuance of shares for capital increase because these do more harm than good for them.
"Wine with bait"
The ups and downs of the stock market in the past three years help investors understand that stock dividends or bonus shares are in fact the dilution of a porridge pot. Of course, whether the diluted porridge pot is delicious or not depends on the development strategy and the ability to use capital effectively. Therefore, during this season of annual general meetings, investors began to raise their voice to the plan for using the capital as some Sacombank shareholders did.
Normally, companies issue shares in private placement to investors at competitive prices to take the most capital surplus. However, according to the Decree No. 1/2010 on share offer in private placement, which took effect this year, the number of investors offered must be less than 100, must not be professional securities investors and must be subjected to at least one year of share transfer restriction.
The long restriction does not attract investors and companies find it hard to find qualified investors unless strategic investors visit them, a financial consultant said.
According to him, it is not easy for investors by offering shares in private placement; most listed companies choose to increase capital by giving shares to existing shareholders. They pay dividends in stock and issue share purchase rights to existing shareholders at a certain exercise ratio and a price that is equal to the par value or lower than the market price.
This year, Sacombank will increase its capital from VND6,700 to 9,179 billion by paying stock dividend, at a payout ratio of 15 percent, issuing additional shares to existing shareholders at an exercise ratio of 20 percent and at a price of VND12,000 per share and issuing 2 percent to key staffs.
Seafood Joint Stock Company No 4 (TS4) issued over 2.8 million shares at a price of VND20,000 per share to existing shareholders at a 3-to1 ratio. Phuc Tien Trade Manufacture Joint Stock Company (PHT) plans to issue 9 million additional shares to increase charter capital from VND110 billion to VND200 billion this quarter, in which 2.75 million shares are sold at VND20,000 per share at a 4-to-1 distribution ratio. Vincom Joint Stock Company plans to issue some VND400 billion of shares to existing shareholders at a ratio of 1,000:202 billion and at a price of VND10,000 per share - the par value.
Indifferent
For an investor, the total shareholder return (TSR) in a year can be calculated from returns and market price changes of a stock in the year. Or in other words, it combines share price appreciation and dividends paid to show the total return to the shareholder.
From this approach, the report on total returns released by StoxPlus Joint Stock Company in mid-March showed that, in 2009, stocks with largest market capitalisation brought in only 27 percent of profits to investors, lower than the average 61 percent of the VN-Index. Even, the profit of bank group declined 11.3 percent, according to the report.
The data of 454 listed companies showed that the average dividend rate of HOSE-listed companies is 2.4 percent while the rate of HNX-listed companies is 3.4 percent, according to the report.
The report says, “The cash dividend payment increases the share price more than anticipated.” Accordingly, shares with price rise have greater dividend payout ratio. As many as 66 companies on the Hochiminh Stock Exchange (HOSE) did not pay cash dividend and generate the total shareholder return of 4 percent while companies that pay cash dividends brought in the total return of 112 percent.
“At present, I do not believe much in absorptiveness of the market in these stocks. This is one reason why most companies have plans to issue shares at face value to raise capital, a method to force shareholders to buy,” said Dominic Scriven, CEO of Dragon Capital.
Amid unclear monetary policy trends, the lending interest rate hovering 17-18 percent per annum, the relatively high consumer price index in the first two months of the year, and instable bank liquidity are major reasons to convince him that investors are not ready for new issues.
According to a member of the board of directors of a fund management company, investors want to hold highly liquid assets which can be converted to cash easily. “So, for them, cash is the king, not stocks," he said. (SGTT)
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