Big Firms Blamed for Unfair Share Allotments

 

On March 26, 2007, the VIPCO general meeting of shareholders approved the decision to issue an additional 17,880,000 shares to raise chartered capital to VND600 billion (US$37.5 million) from the current VND421.2 billion. New VIPCO shares would be allotted as follows: The company would keep 9,118,800 shares (or 51 per cent of total new issues) at VND15,000 a share, and the remainder of 8,761,200 would be sold to existing shareholders at a ratio of 50:21, or those holding 50 shares would have rights to buy every 21 shares at a price of VND40,000. Unallocated shares would be sold by the Board of Directors to the public at a price not less than VND40,000 each.

 

According to Mr Nguyen Hoang Hai, General Secretary of Vietnam Association of Financial Investors (VAFI), the above plan for VIPCO share issuance is against Clause 78 and 79 of the Enterprise Law (2005). Clause 78 stipulates types of shares, including ordinary shares and preference shares, and Point 5 of this Clause states that shareholders of the same type will be given the same rights, interests and obligations. Clause 79 provides rights of ordinary shareholders and Point 1 (c) states that an ordinary shareholder is entitled to take pre-emption in buying newly issued shares in proportion to his ordinary shares.

 

The decision of Vietnam Petroleum Transport Joint Stock Company to buy shares at a lower price than that for existing ordinary shareholders (only equal to 37.5) and buy more than double volume over ordinary shareholders (exceeding 5,288,904 shares) is against the Enterprise Law and is unacceptable, Hai affirmed. Once issuing shares for existing shareholders, all shareholders are entitled to have the same benefits, in both price and buy-in ratio.

 

Hai emphasised that the unfair allocation and selling of shares is not unusual in large companies in Vietnam. Many companies issue shares for staff, but keep the State equity unchanged; as a result, outside shareholders lose. “If anyone finds unlawful acts, the situation should be changed; otherwise, there will be no solution. This is a big loss for small shareholders,” Hai said. In the coming time, VAFI will send recommendations and statistics about this situation to state-run corporations.

 

According to Hai, if an enterprise wants to raise capital effectively, the 51 per cent of state equity should be eradicated. Otherwise, it will be a serious hurdle in mobilising capital. In fact, many corporations still want to retain this proportion, even when more shares are issued. If they issue shares for existing stakeholders at par value, the mobilised capital will be small, while more burdens are put on the companies as they have to pay more dividends. If the state equity ratio is reduced, the asset value of enterprises will be higher. Although the state equity is lower, its share value will be higher.