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Stock market dysfunctions as fund-raising channel   2011-05-04 - SGT

The local stock market is failing to function as a fund-raising channel for listed firms, and serve as a platform to promote recognition of companies on the bourse. Instead, it is instilling distrust in listed firms and investors alike.

Figures from the stock watchdog and viewpoints from experts and practitioners point to the dark side of the equity market, not because of its dreary performance over the past two years, but rather the damages inflicted on investors and listed firms alike.

Capital channel stonewalled

Gone is the gilded age when numerous IPOs were launched to gain access to cheap capital, as no companies now pin hopes on drawing public funds via the market. The door has almost been slammed shut.

Figures from the Hochiminh Stock Exchange show that in the first quarter of this year only two companies sought to sell shares to outsiders via auctions on the exchange with a total offering of 7.35 million shares. No matter how small were the offers, these two companies were able to sell only 5.2 million shares worth a total of VND78.4 billion, a sum too small for any enterprises really thirsty for capital.

But the lost appetite for new share issues on the equity market is not anything phenomenal, as this situation of stagnant cash flow has dragged on for long. In the first quarter of 2010, the picture was no less weary as only 4.13 million shares were sold out of a total of 9.7 million shares floated by four companies.

Two years ago when the equity market started to slide into the limbo, many have patiently been waiting for a brighter day to pool cheap capital sources from the public, but the situation has simply lasted too long, with no light at the end of the tunnel.

The local market has even bucked the global trend, which has gone up in parallel with the economic recovery following the financial meltdown that began in late 2008. In fact, while most stock indices on global markets have increased since last year, both the VN-Index and HNX-Index of the two exchanges in Vietnam have declined by 2.04% and 32% since the end of 2009, respectively.

The poor performance of the market is also seen in falling liquidity.

In 2010, the daily traded value averaged out at VND1.5 trillion on the southern bourse and VND974 billion on the northern bourse, but the figures during the first quarter of the year were around VND600 billion and VND400 billion only. That shows investor confidence on the stock market has been seriously dented.

Damaged image

Early this week, Saigon Telecommunication & Technologies Corporation, a listed firm under the code of SGT on the Hochiminh Stock Exchange, made an unprecedented move when announcing a decision to de-list its stock from the bourse. Dang Thanh Tam, chairman of the company, says SGT will submit an official document on this move to the State Securities Commission next month.

Tam explains the stock market’s good side of being a fund-raising channel does not exist now as many companies have failed to issue shares via the market to mobilize capital. Nearly 100% of shareholders at the company’s general meeting last week passed the decision on stock delisting.

“Both the board of directors and shareholders do not see any positive sign of the stock market so if we continue to stay on bourse, the company’s reputation among partners will be ruined,” Tam comments.

The chairman also reveals that Saigon-Quy Nhon Minerals Co. (SQC) on the Hanoi Stock Exchange will also seek to de-list its stock, following a decision at the company’s general meeting on April 21. Tam is a major shareholder in SQC.

SGT was traded at VND7,500 a share on the southern bourse yesterday, far lower than the face value of the stock. Tam comments on local media that given the current price, the market capitalization value of the company was even lower than that of a small land plot owned by the company.

Currently, among over 580 stocks on the two exchanges, there are up to 418 stocks having market prices lower than their book values, while on the HCMC bourse alone, there are about 70 stocks having a price lower than the par value.

An executive at SME Securities Co. says that the dreary stock market has indirectly impacted on the development strategy of many listed firms as they cannot raise funds from the stock market.

However, unlike SGT and SQC that are seeking to escape from the market, other companies are trying to find other capital sources in tough times. These companies either delay dividend payment and use the money to develop business like MSN, or issue convertible bonds like OGC, DLG, or sell assets and liquidate investments like SAV, REE.

These companies, says the stock broker, are expecting that ‘the sun will rise again.’

In fact, several experts are of the belief that Vietnam’s equity markets will bounce back strongly towards the year’s end.

Viet Dragon Securities Co. says in a report that compared to regional stock markets excluding Indonesia, the average return on equity ratio of the HCMC market is about 26%, higher than regional markets while the price per earning (P/E) and price on book value (P/B) ratios are very low at 9.9 times and 1.2 times, or equivalent to historic levels when the market bottomed out at 234 points on the VN-Index in February 2009.

Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee, said at a seminar in HCMC last week that the most likely scenario for the stock market this year was that it would strongly recover by the third quarter.

Foreign investors are having their eyes on the stock market as seen in their net buying value in the last four weeks, he said.

The expert also remarked that in the last two weeks, the number of foreign securities companies seeking permission to operate in Vietnam has increased while several foreign-invested securities companies have started to widen their networks to many provinces to cash in on the upward trend by the end of this year.

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