Issuing more shares: two-edged knife

There is the competition in the group of foreign stock players including new investment funds and long-established funds. While new funds, mainly hedged funds capitalised at $50-100 million each, are rushing to disburse capital in blue chips, old funds are slowly offloading shares.

Some funds under Dragon Capital started to sell shares coded CII, REE and VSH from last week. Others that prefer taking “short profit”, like Deutsche Bank did not miss the “profit-taking” opportunity as for the shares they bought when VN Index stood at below 480 points. On some days, total value of share sales made by Deutsche Bank climbed to 150 billion dong. Finally, from the status of net purchase in nearly 30 sessions, foreign investors shifted to the net sales in the last five sessions.

Foreigners’ securities transactions are not purely for investment portfolio restructure. One representative from Dragon Capital said that he was afraid on the wave of more share issue plan of listed enterprises between March and April. With the current speed of capital increase, the dilution of share value is unavoidable, but the dilution is not embedded with profit growth. Many companies increased capital by 30-50 percent, even 100 percent but their 2010 profit growth is targeted at only 20-30 percent year-on-year. From this, the earnings per share (EPS) of these firms could decrease and push Price to Earnings (P/E) ratio of the whole market to new high whereby the attractiveness of Vietnamese shares was downgraded compared with regional nations.

But the enterprises did not think like that. When it is very hard to access bank loans at acceptable lending rates, listed firms decide to issue more shares for business expansion. On another hand, as explained by a firm, domestic investors prefer to buy low-priced stocks. Splitting shares will pull down share prices, attract more buyers and increase liquidity.

Enterprises should consider how many shares set for issue. The 2006-2007 period showed that not all companies could well-use the surplus capital from additional share offerings. Some needed only one dong but issued extra three dong. When that corporate profit could not increase correspondingly, the share price will slump sharply and cause heavy pressure on that firm. Diluting shares, thus, will easily become the two-edged knife for a listed company’s profit strategy.

Last week, investors still focused on purchasing bonus shares or additionally issued shares. On March 3, Hochiminh Stock Exchange (STC) continued seeing a brighter session in liquidity. VN Index closed at 507.32 pts, surging 6.32 pts or 1.26 percent from the previous session with total trade of 37.8 million shares for 1.546 trillion dong. Hanoi bourse’s liquidity also bounced to nearly 33 million shares and 1, 1 trillion dong. HNX Index ended at 170.22 pts, up 2.91 percent from March 2, 2010.

Tags: vietnam securities, vietnam stock, vietnam stock exchange, vietnam Stock exchanges, Vietnam stock market, Vietnam stock market 2010

Posted by VBN on Mar 7 2010. Filed under Stock. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry