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Friday, June 14, 2024

Market recovery triggers capital increases

By Trieu Duong

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As access to bank loans is difficult, especially for borrowers in the real estate, construction and securities sectors, and corporate bond issues are strictly put under control, businesses have no other choice but to increase their charter capital by launching new shares.

Big capital increases back on the table

The stock of Novaland (HOSE: NVL) once again hit its daily ceiling price in the trading session on March 27, the second time in a row, with a matched volume of nearly 55 million shares after this firm confirmed that it had successfully concluded talks over a maturity extension for two batches of bonds. In addition, Novaland is looking to raise its charter capital by VND19.5 trillion, or 2.5 times, to VND48.75 trillion, by offering more than 975 million shares to strategic and professional stock investors via private placement. Along with that, an extra 1.95 billion shares will be offered to existing shareholders. With each share held, investors can get one new share. In both options, the price at which NVL shares are put up for sale is not lower than VND10,000 each.

Another enterprise that has also been in the spotlight recently is Bamboo Airways. The airline in the ecosystem of FLC Group is weighing share issuance as a way to increase its charter capital by nearly VND10 trillion from VND18.5 trillion at present, in an attempt to finance its debt restructuring and support its operations. Recently, a representative of Bamboo Airways said a new investor had been found to replace the group related to former Chairman Trinh Van Quyet.

In the document serving its 2023 annual general meeting of shareholders, scheduled for April 7, Becamex Infrastructure Development Joint Stock Company (HOSE: IJC) presented a plan to offer its existing shareholders nearly 126 million shares at a rate of 50%, which mean those who hold two shares now are entitled to buy one more with an offered price of VND10,000 per share. If successful, the company will gain nearly VND1.26 trillion, taking its charter capital from over VND2.51 trillion to more than VND3.77 trillion.

Meanwhile, Vietnam Construction and Import-Export Joint Stock Corporation (HOSE: VCG) intends to send its shareholders a plan to sell nearly 48.6 million shares to raise funds for dividend payment, thereby raising its charter capital to some VND5.34 trillion. Similarly, Thua Thien Hue Construction Joint Stock Company (HOSE: HUB) is looking to once again put forward the plan for share issuance to its existing shareholders to enlarge its charter capital by 30% this year.

In the securities group, Tien Phong Securities Corporation (HOSE: ORS) has published a proposal brought up at its general meeting of shareholders with the sale of an additional 200 million shares to double its charter capital to VND4 trillion via the distribution of share purchase rights to its existing shareholders or private placement. BIDV Securities Joint Stock Company (HOSE: BSI) is working towards issuing an extra 15 million shares to increase its charter capital to VND2 trillion. VIX Securities Joint Stock Company (HOSE: VIX) feels the need to put more than 87 million shares on offer to adjust up its capital.

In the banking group, plans for big capital hikes are unveiled one after another. As per the document prepared for its 2023 annual general meeting of shareholders, the National Citizen Commercial Joint Stock Bank (HNX: NVB) has drawn up a plan for the private placement of 620 million shares to more than double its charter capital from VND5.6 trillion to over VND11.8 trillion. Eximbank (HOSE: EIB) also has a plan for capital increase after over a decade, seeking to pay a dividend of 20%, thereby boosting its charter capital to around VND14.81 trillion. Most recently, VPBank has agreed to transfer a 15% stake to foreign strategic shareholders to add US$1.5 billion to its capital.

Financial resources in unstable environment

As access to bank loans is difficult, especially for borrowers in the real estate, construction and securities sectors, and corporate bond issues are strictly put under control, businesses have no other choice but to increase their charter capital by launching new shares.

Enterprises active in the aforesaid sectors always have a big demand for capital, with a high ratio of financial leverage.

For this reason, given the trend of lending rates recently shooting up and still maintained at a high level, a capital increase strategy is essential to lessen the pressure from financing costs. Citing securities firms as an example, to facilitate their margin lending with competitive interest rates, it is of great importance to constantly build up their charter capital to enhance their competitiveness, especially when the market is moving toward recovery, which will make the demand for margin loans buoyant again.

With a considerable volume of corporate bonds approaching their maturity, especially in the fields of real estate, construction, banking, and securities, while new bond issues to finance the buyback of bonds falling due prove increasingly difficult, it is understandable why businesses switch to the stock market in search of a source of capital for their debts that are about to be due.

The current economic and market conditions are turning more favorable.

Firstly, although the stock market is still moving sideways and struggling, quite a few forecasts suggest the market’s outlook will be better in the second half of this year. Perhaps, this is why many enterprises have mapped out a plan to sharply hike their capital in anticipation of the coming period, including all industry groups, particularly real estate, construction, and securities, as mentioned above.

Secondly, as deposit rates have been going downhill since the beginning of the year, making bank savings less appealing as an investment channel, cash flows will likely find their way back to the stock market in search of opportunities. Their targets will be companies with efficient business and those undergoing restructuring, whose stock prices have taken a nosedive over the past year, making their valuations attractive again.

Thirdly, when the foreign exchange rate is kept stable, capital flows from foreign investors will get more heavily engaged. This could be another supporting factor for the capital increase plans of domestic enterprises in the coming period via mergers and acquisitions, of which the deal at VPBank is the most typical example. As per statistics, from March 7, when foreign investors turned net buyers again on the stock market, to March 27, foreign investors net bought a total of more than VND3.7 trillion worth of shares on the HOSE alone.

However, it should be acknowledged that when the stock market has just begun to recover, those big capital increases devised by a series of listed companies can make investors feel “overwhelmed” by the massive volume of shares to be offered. Therefore, except for those whose strategic investors and major shareholders are looking to acquire more shares, only time can tell whether the capital increase plans of other firms are feasible or not.

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