Stock Market Still Hot, But Experts Warn Of Oversupply

VietNamNet Bridge - Businesses are rushing to issue shares to increase their charter capital amid the stock price upswing that began last year. However, analysts warn that the movement may lead to an oversupply of stock.

Analysts warn of an oversupply of stock

Issuing shares to raise funds

Sam Holdings JSC’s shareholders’ meeting approved a plan to issue 7.2 million shares to pay dividends and issue 100.9 million shares to existing shareholders to raise its charter capital from VND2.417 trillion to VND3.5 trillion.

Sam Holdings said it would issue shares at the minimum price of VND10,000 per share, or VND2,000 higher than the current market price. If the company succeeds with the share issuance, the number of shares in circulation would increase by 44.7 percent. 

If Sam Holdings fulfills this year’s business plan, or profit increases by 26 percent as expected, profit growth would not catch up with the capital increase.

As the real estate market has warmed up again, more new real estate firms have been established and more existing firms are rushing to call for more capital through stock issuance.

CEO Group, for example, issued 51 million shares in 2017, raising its capital from VND1.029 trillion to VND1.544 trillion.

More recently, Novaland announced a plan to issue 200 million bonus shares and 100 million of shares to specific investors. Nam Long Investment JSC is issuing 31 million shares to seek VND566 billion worth of capital. And Thanh Nam Group is seeking VND300 billion through the issuance of 31 million shares.

A number of banks have also geared up with their plan to increase charter capital. VP Bank has decided to increase its capital by VND12.093 trillion, while SCB by VND2.305 trillion, MilitaryBank by VND3.45 trillion, VIBBank VND2.456 trillion and LienVietPost Bank wants to raise its capital to VND10.368 trillion from VND7.5 trillion.

Risks ahead

As the stock price is on the rise, both the issuers and investors are now excited. Investors are willing to buy more shares as their believe investments will be profitable.

However, investors have been warned that the issuance of shares en masse would lead to stock dilution and the decline of the ROE (return on equity) ratio.

They also said that the easy capital mobilization would encourage enterprises to implement many new projects, even though they still have not prepared well, resulting in ineffective capital use.

The situation would be especially serious for businesses which have to rely heavily on loans to implement their investment projects. 

Vietnam once witnessed a share issuance rush in the past. Shares were issued at sky high prices, but later, as business performance was lower than expectations, share prices dropped dramatically, causing big losses to investors.

US$1=VND22,000

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