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Thursday, June 20, 2024

New concerns for stock market

By Trieu Duong

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That many enterprises will be subject to inspection regarding their previous stages of flotation or divestment of State capital sparks concerns among investors. This could be another source of pressure on the stock market, which is already in a sensitive and very vulnerable state.

Check on flotation and divestment

Development Investment Construction Joint Stock Corporation, or DIC Group, saw its stock’s price sink to the floor during the two sessions on March 1 and 3 regarding the news that this group would face a comprehensive inspection of how they previously conducted flotation and State capital divestment. From February 21 to March 3, DIG lost more than 23% of its value.

At a meeting on February 27, Dang Cong Huan, deputy inspector general of the Government Inspectorate, announced a decision to inspect the group’s legal compliance during the flotation process and State capital divestment.

In another development, on February 27, the Government Inspectorate published its conclusion following the check on Vietnam Sport Joint Stock Company (Vinasport) under the Ministry of Culture, Sports, and Tourism. The inspection authority duly provided the Ministry of Public Security with all the necessary information on the seven cases of major violations by this company, which had damaged State property. For the violations during the flotation process at Vinasport, the Government Inspector pointed out the responsibility that the Ministry of Culture, Sports, and Tourism officials must take on.

Later, on March 3, the Government Inspectorate made public their conclusion regarding a similar investigation into Waterway Transport Corporation (now Waterway Transport Joint Stock Corporation), revealing a series of wrongdoings in flotation and divestment of State capital here. In particular, dossiers of the two cases of improper flotation and divestment were already sent to the Ministry of Public Security for verification.

In late 2022, the Ministry of Public Security called for a prosecution against seven individuals in the case known as “breach of regulations on management and use of State assets, causing loss and waste,” which took place at Civil Engineering Construction Joint Stock Corporation No. 1 (or Cienco 1 for short). It was then concluded that the misconduct during the flotation of Cienco 1 had cost the State more than VND230 billion.

In response to the news about their inspection, DIC Group, apart from providing additional information on their roadmap for flotation and divestment of State capital in 2017, informed the current policy of the State is to review all activities related to flotation and State capital divestment at State-owned enterprises in the past. For this reason, DIC Group and many other firms are also subject to inspection by the Government Inspectorate. This is a regular activity of the Government Inspectorate and State management agencies, especially in the current context.

Are investors concerned?

Facing this situation, quite a few investors feel concerned that enterprises will be subject to inspection concerning their previous stages of flotation or divestment of State capital. This could be another source of pressure on the stock market, which is already in a sensitive and very vulnerable state.

It should be acknowledged that the progress of flotation and divestment of State capital in recent years moved at a snail’s space, with the set targets for each year often unattainable. Not only is the number of enterprises subject to flotation modest, but the degree of flotation at each one is also minimal, as the State remains the dominant shareholder. Notably, many enterprises that have completed the flotation process have not yet been listed on a stock exchange, making their performance not much improved.

Those obstacles and hardships impeding the progress of flotation and divestment of State capital have been much discussed. They range from the mindset and perception of the State economy playing the leading role, the privileges that State-owned enterprises are granted to the inconsistent mechanisms and policies, the unfavorable market conditions, the lack of guidelines for corporate valuation, etc.

Furthermore, the leadership of State-owned enterprises is not keen on speeding up flotation and State capital divestment for fear of losing their positions when their companies become joint-stock. They also find the risks of such a process discouraging since they may later get inspected and accused of selling cheap State property.

Besides those irresponsible corporate leaders and those having cold feet, there are still competent ones who have taken advantage of the policy to take over the shares of other enterprises during the flotation process and State capital divestment at a price much lower than the real one. This has caused a significant loss of revenue for the State budget.

The major loss of State assets during flotation is land since State-owned enterprises are given access to quite a few pieces of land of great value at highly desirable locations. However, when land use purposes get converted during the flotation process, the new land prices after recalculations do not meet the market levels. Therefore, the Ministry of Finance late last year proposed studying and amending the legal regulations on flotation in the coming time, with special attention paid to the calculation of realty values during this process.

Back to the policy of stepping up inspection related to flotation and divestment of State capital, this may be aimed at preventing the State budget from suffering revenue loss. That said, it may also affect the progress of flotation and State capital divestment soon, making this activity, which is already slow-moving, even more sluggish.

It should be reminded that the annual divestment of State capital is one of the important catalysts for the stock market, more or less a driving force that props up the market when information is insufficient. Many investors have made a fortune by timely swing trading at those listed companies where State capital is further disengaged, attracting a massive cash inflow.

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