Companies ‘strategic’ share sales raise eyebrows

Monday, May 21, 2018 08:15

Last month Halcom Viet Nam announced a list of investors who it said are set to buy its shares this year. — Photo

Last month Halcom Viet Nam announced a list of investors who it said are set to buy its shares this year.

The 16 investors will buy a total of 24.5 million shares at a price of VND10,000 each, acquiring between 50,000 and 10 million shares each.

The plan had been approved at an extraordinary shareholders meeting last December.

Of the VND245 billion to be raised, about VND100 billion will be used by the Phong Dien Mien Trung Joint Stock Company to build the Phuong Mai Wind Power Plant in Binh Dinh Province, and VND125 billion will be used to upgrade Provincial Road 123. The remainder will supplement the company’s working capital.

Many other companies too have opted to go down the equity path to raise funds rather than borrow from banks.

Intriguingly, many of them including HID, have sold their stakes to strategic partners at several times higher than the market price.

For instance, HID’s shares are trading in the market at around VND3,300 each.

In fact, its two-year high on the stock market is only half the price.  

HCD InvestPro Joint Stock Company (HCD) and the Cuu Long Petro Urban Development And Investment Corporation (CCL) also sold at similar prices.

In March CCL said it had sold 12 million shares to four investors at the price of VND10,000, raising VND120 billion, which it plans to use to fund a strategic project to build a urban area 5A, set up a seafood trading company, restructure debt and supplement working capital.

Analysts said selling stakes at a huge premium to market prices has become a trend in recent years.

The buyers are often individuals and called “strategic investors”.

Why are they prepared to pay such high prices when they can buy much cheaper from the market?

In reality, at the De Tam Joint Stock Company’s annual general meeting recently, some shareholders also questioned the board about the issuance of five million shares to strategic investors at a price of VND10,000, or four times the market price of VND2,500.

Besides, many of the companies failed to achieve good results subsequently, triggering speculation whether they are indeed strategic investors or something dubious is going on.

Often, the strategic sale pushes up the sales and the price of the company’s shares on the market.

State firms struggle with valuation

The Vietnam Television Cable Corporation (VTVCab) had to cancel its initial public offering (IPO) on April 17 after only one investor registered for the auction by April 10, the deadline.

The State-owned company had announced it would offer more than 42.2 million shares, or 47.84 per cent of its stakes, for sale at a starting price of VND140,900 (US$6.26).

A successful IPO would have fetched the Government around VND6 trillion ($264.2 million) and valued the company at VND12.4 trillion.

Analysts said the IPO failed to attract investors because the price was too high considering the firm’s performance and business conditions.

In 2014-16 VTVCab posted steady growth in revenues but its net profits declined from VND126.5 billion in 2014 to VND76.5 billion a year later, in 2016 .

The company’s valuation in May 2017 raised controversy after the State Audit reported its assets were worth VND4.27 trillion ($187 million), or VND279 billion ($12.2 million) higher than the estimate by CPA Vietnam Auditing Company Ltd.

In its prospectus, VTVCab had said assets stood at VND2 trillion ($88 million) and the state capital at VND450 billion ($19.8 million). Following the valuation , the state capital figure somehow skyrocketed to VND6.35 trillion ($286 million). Receivables were estimated at VND1.55 trillion ($66 million), increasing its assets to VND7.9 trillion ($347.6 million).

In recent times the media has also been talking a lot about a deal in which State-owned Mobifone bought 95 per cent of Audio Visual Global (AVG), which reportedly led to a loss of VND7 trillion to the Government.

Multiple entities carried out valuations of AVG and came up with different results, but all had one thing in common that was, according to those  the company’s valuators, its market value was very huge, ranging  between VND16,565 billion to VND33,299 billion, while the company’s  book value was only VND1,970 billion.

Book Value literally means the value of the business according to its "books" or financial statements. In this case, book value is calculated from the balance sheet, and it is the difference between a company’s total assets and total liabilities.

Market Value is the value of a company according to the stock market. Market value is calculated by multiplying a company’s shares outstanding by its current market price.

According to the Government Inspectorate (GI), the AVG deal violated regulations governing investment and management and use of State capital.

The GI also found wrongdoings in choosing entities to carry out the valuation.

Mobifone had chosen Vietcombank Securities and AMAX Investment Consultant Company without inviting bids.

Mobifone’s use of AMAX’s valuation of VND16.565 trillion without accounting for short-term debts of VND1.134 trillion also flouted norms.

The two cases show how the valuation of State-owned firms seeking equitisation with the discrepancies running into billions of dong is eroding investors’ trust in the equitisation process.

Analysts say it is easy to manipulate the value of companies, especially when assets are in the form of landed properties.

One of the reasons is that the market value of a property is hard to determine.

Another limitation is that enterprise valuation entities lack the professional capabilities required.

Besides, current laws do not require valuation of companies that are fully or partly owned by the State unless they plan to equitise, participate in joint ventures or face bankruptcy.

In the event, analysts said until legal provisions related to assessment are strengthened, transparency in assessment and sale is the only recourse to reduce losses to the Government.    

Car imports set to surge as governments issue certificate

Import of cars into Viet Nam could surge as authorities in some Asian countries have issued vehicle type approval (VTA) certificates to Vietnamese importers.

Thoi Bao Kinh Te Sai Gon reported that Thailand and Indonesia have issued VTA certificates to Honda, General Motors, Ford, and Toyota and the Vietnamese Ministry of Transport has accepted them.

Market observers said imports from these two countries would not increase immediately since it could take two to three months for the auto plants in those countries to fulfill Vietnamese orders.

Thailand and Indonesia were the two largest auto exporters to Viet Nam last year, shipping around 47,000 units.

Some importers of vehicles from Germany also said they hoped to soon get VTA certificates acceptable to the ministry to import.

Car imports almost came to a halt earlier this year after the Government’s Decree 116 set stringent quality, technical safety and environmental protection requirements for imported cars.

It forced importers to scramble to get the VTA certificates from exporting countries, but authorities in many countries do not issue such certificates.

The Viet Nam Automobile Manufacturers Association reported that over 80,680 cars were sold in the first four months of this year, of which imports accounted for 47 per cent. — VNS

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