Market watchdog tightens up on massive shares sales

New rules on the sale of shares should spell the end of market oversupply and ensure better initial stock valuations

Vu Bang, chairman of the State Securities Commission (SSC), the country’s stock market watchdog, said that while capital mobilisation via new share sales was an effective way for listed firms to raise money, the quality of stocks was low and the rate of share splits was very high.

This was disadvantaging investors, he said. The current situation is, however, about to change.

Bang explained that the amended Securities law, which comes into effect on July 1, means that when listed firms want to raise funds via new share sales, the SSC will ask both the issuers and issuing advisors to evaluate the impacts of share splits after new share sales.

“This evaluation must be stated in the issuing documents. Additionally, information on the implementation of projects using funds from such proceedings must be made public regularly,” Bang told VIR.

Listed property developers would also have to announce the issuing of project licenses, capital investments and debt payment plans to investors, Bang added.

Hoang Duc Long, head of SSC’s legal department, said in the past, listed firms issued too many new shares to raise funds, leading to concerns about market oversupply. Some listed firms even issued new shares to the public and via private placements at the same time.

“The amended Securities Law states that if a listed firm issues shares via private placements, public share sales are not allowed. And two private placements within 6 months are not allowed either,” said Long. 

In 2010, capital mobilisation via the stock market reached VND114 trillion ($5.84 billion), of which VND83 trillion ($4.25 billion) came from new share sales, according to SSC statistics.

“Raising stock quality is something that every market [regulator] should do,” Dominic Scriven, chief executive officer of Dragon Capital, one of leading foreign investment fund management companies in Vietnam.

Nguyen Bang Tam of Vietnam Listed Firms Club’s chairman agreed. He said that Vietnam’s stock markets were now professional and that to attract capital from both foreign and domestic sources, stock quality should now be raised. 

Tran Nam Son, An Binh Securities’ legal director, said that higher listing standards were necessary, but that they did not tell the whole story. How a company operated over time was more important as an enterprise might initially try to satisfy issuing requirements but later prove a poor performer.

“Investors will decide themselves which stocks are worth the risk; they won’t use listing standards. Therefore, the key here is information transparency,” said Son.

In a related development, mobilised capital or the proceeds from public companies’ share sales are to be closely supervised by market regulators in a move to ensure the effective use of investors’ money.

On January 4, the government issued Decree 01/2010/ND-CP on share private placements. The new decree states that the transfer or sale of shares issued via private placements will be limited to a period of one year, as opposed to the previous timeframe of 3-6 months.