Signs of capital tie-up on stock market

That companies delay publicly informed dividend payments for shareholders and raise funds by issuing more shares which causes a share dilution, is waning the interest of stock market.

It is becoming an utterly urgent concern that who is responsible for guaranteeing the fairness for investors when their dividend payments are repeatedly delayed and bonus shares turn “penalty” shares owing to dilution-driven price decline.

Rescheduled dividend payment, bonus shares become trendy

The list of companies delaying dividend payment is getting longer and longer after go Han Joint Stock Company (NHW), VINAVICO Investment, Construction and Mining Joint Stock Company (CTM), Song Da 3 Joint Stock Company (SD3), Song Da 6.04 Joint Stock Company (S64), Vinas A Luoi Joint Stock Company (ALV), Hong Ha – Long An Joint Stock Company (HHL), Song Da Investment – Development Joint Stock Company (SIC) and Phuc Tien Trade-Manufacture Joint Stock Company (PHT) are added. The most common reason for the rescheduling is “the failure to balance capital sources” or “financial difficulties.”

Some companies gave different reasons. For instance, 565 Construction Joint Stock Company (NSN) said it faced difficulties in recovering capital from projects and loan limit from banks. Or Song Da 7.04 Joint Stock Company (S74) defended that it had to concentrate capitals resources to ensure uninterrupted operation, etc.

Exceptionally, Hoa Binh Automobile Mechanical Joint Stock Company (AHF) has not paid any dividend to its shareholders for six straight years. Dat Xanh Real Estate Service & Construction Corporation (DXG) said it changed the date for dividend payment because it was waiting for guidance document vis-à-vis dividend tax exemption from the competent State agencies. However, its shareholders cast doubt over this reason. They said the company had many ways to solve this problem rather than force its shareholders to wait for another four months. It could pay with an amount set aside for possible tax on dividends paid. When the guidance was delivered, it could return the remaining amount of dividend to its shareholders.

As for dividend payment in shares, the main reason for the rearrangement relates to administrative procedures concerning capital increase and share listing. If their stocks are gaining in value, they are very quick to float new shares but their actions are opposite in the other case.

Disadvantage for investors

Many companies attribute their postponement to the completion of administrative procedures related to capital hike and share listing. However, Mr Pham Trung Minh, Deputy Director of Securities Registration Department, said: The Vietnam Securities Depository (VSD) gave reasons for the delay to the absence of sanctions on companies postponing divined payment. Currently, the VSD only sends letters of reminder or warning.

Many investors voice their fears about the health of their companies when the rescheduling of dividend payment is announced. Therefore, many companies may be misinterpreted as having “problem” operations. Some also throw their doubts over the leadership or transparency of those companies.

Exorbitant borrowing rates make many companies thirst for capital for production and business operations. Thus, rescheduling dividend payment will help companies ease pressures of capital sources. Many businesses delay the payment date for a couple of months, even a half year. This is distressing many shareholders who are wondering whether their money is being appropriated.

As regards bonus share issue, many companies issue additional shares immediately after they are eligible. They regard this as a good, quick and interest-free fundraising channel. For big business entities like Asia Commercial Bank (ACB), Sacombank (STB), Eximbank (EIB), Saigon Securities Inc (SSI), Sacombank Securities Joint Stock Company (SBS) or Kim Long Securities Corporation (KLS), each issue will have a value of at least VND100 billion, or an equivalent of 10 million shares.

The nature of bonus stock issue or stock dividend payment is actually “take money from shareholders to give them,” according to experts. Companies usually fix record dates for seasoned equity offering (SOE) quite far from the date of exercise. This means the money paid by their shareholders is tied up. If the market is negative and share prices go down, their shareholders are unable to sell their stocks to pare further losses. This is the reason why bonus stocks are branded an opposite name, “penalty stocks.”

Many investors are wondering why companies continue increasing capital because more outstanding shares will intensify pressure of profit on the board of management after shares are diluted. Kim Long Securities Corporation (KLS) increased its registered capital twice and the stock brokerage house reported to have a cash balance of VND1,644.75 billion at banks [thanks to secondary equity offerings]. If all companies do the same as KLS, shareholders can only “look at the sky” and wish for their money to be used well in the future.

Source vccinews

Tags: vietnam stock, Vietnam stock market, VNindex