Last week, the VN-Index reached an all-time high of 1,300 points as investor optimism soared due to prospects of an economic surge in the context of nationwide vaccinations and favourable supporting policies.
Banks are seen as proxies for the health of the US economy. Their shares were in the doldrums around this time last year when global commerce ground to a halt. But over the past few months, stocks have bounced back. The index returned to a record in March, topping its prior high from 2007.
|Hoang Viet Phuong, head of Research at SSI |
This year’s annual general shareholders' meeting (AGM) season has nearly ended, with equity capital raises just beginning. In particular, the two most heavily-weighted sectors (banking and property) combined represent over 50 per cent of the VN-Index and are expected to be the most active.
There are, however, some specific names where we are even more optimistic: VietinBank, Techcombank, and Vietcombank. We also have VPBank, TPBank, and Sacombank on our watchlist as they may have surprising upside relating to capital raising plans (VPBank, TPBank) and a turnaround story after the settlement of legacy assets (Sacombank). In the property sector, our current top picks are Nam Long Investment Corporation (NLG), Development Investment Construction JSC (DIG), and Dat Xanh Group JSC (DXG) which will be the beneficiaries of infrastructure improvements in Ho Chi Minh City and neighbouring areas while offering strong earnings growth prospects in 2021.
We are of the view that the domestic banking sector will be the largest beneficiary as their recapitalisation plans will fuel stronger operations. Many privately-run banks including Techcombank and VPBank were significantly recapitalised in 2017 and 2018 while state-owned banks like Vietcombank and BIDV had their capital reinforced during 2019. Since then, credit growth at listed banks has outstripped equity growth while more stringent Basel II standards were adopted across the sector since 2019. Banks require greater capital buffers to maintain their current growth momentum during the pandemic.
This year, no less than 16 listed banks under SSI coverage plan to significantly raise charter capital in 2021. In detail, the charter capital at these banks is set to increase VND82.7 trillion ($3.6 billion) (up 31 per cent on-year), VND61.8 trillion ($2.69 billion) or 75 per cent of which is expected to be raised via share splits; VND18.3 trillion ($795.66 million) or 22 per cent from private placements and/or rights issuance events, and VND2.6 trillion ($113 million) or 3 per cent will be issued via employee stock ownership plans (ESOPs).
Since 2020, the State Bank of Vietnam (SBV) restricted bank payments of cash dividends. Instead, the SBV encouraged stock dividends or buying back outstanding Vietnam Asset Management Company (VAMC) bonds. The only exception was that cash dividends could be paid by state-owned banks (Vietcombank, VietinBank, and BIDV) where a cash dividend was specifically requested by the State Treasury. State-owned bank stock dividends in 2021 are supported by Decree No.121/2020/ND-CP which allows the government to inject capital into banks where there is over 50 per cent state ownership.
Techcombank, VPBank, and Sacombank have maintained their no-stock dividend policy since 2018. Meanwhile, for most commercial lenders, stock dividends are set at a historically higher ratio as compared to previous years, as the SBV has not permitted the payment of cash dividends during 2020 and 2021. We note that some private banks would completely clear their VAMC bonds during 2020 and can pay stock dividends.
The majority of these plans, such as those by VIB and VPBank, are already in the pipeline. These lenders have been targeting to raise equity capital via private placement since 2018-2019. Similarly, Vietcombank and BIDV planned to sell equity stakes to foreign shareholders since raising capital in 2019. In the case of LienVietPostBank, a private placement was initiated in 2020. All of these plans have been active this year.
Elsewhere, property developers are also paying more attention to capital mobilisation via bond issuance. Last year, the government released Decree No.81/2020/ND-CP dated July on amending and supplementing a number of articles of the government’s 2018 Decree No.163/2018/ND-CP on the issuance of corporate bonds.
Prior to Decree 81, which aimed to regulate overheated demand, bond issuance was the preferred method for property developers to raise capital in 2020. Based on our research, VND191 trillion ($8.3 billion) worth of corporate bonds were issued during 2020 by real estate developers, accounting for over 40 per cent of corporate bond issuance during the year. New issuance by real estate developers aggregated VND53 trillion ($2.3 billion) in the year to date.
In 2021, the equity market has been much more favourable to the 20 largest listed residential developers. We note that there are seven companies planning to raise equity capital in 2021, with an initial expected amount of VND18.7 trillion ($813 million) via private placement, rights issuance, bond conversion, and VND434 billion ($18.87 million) in equity issued to ESOP programmes. Meanwhile, the remainder only plan to increase charter capital via share dividends.
Compared to last year when equity capital raises were insignificant at approximately VND2.4 trillion ($104.35 million), mainly executed via stock dividend/bonus, these 2021 capital raises should substantially support the expected growth of these companies over the medium-term. Given the current positive market sentiment, the timing of these equity capital raises looks very good as well.
In the same vein, the brokerage sector is also set to expand its footprint. The five largest listed brokerage firms are planning to raise equity capital, with VND6.4 trillion ($278.26 million) via right issuance, private placement and/or bond conversion, and VND813 billion ($35.35 million) via ESOP. This should help the industry expand its business, especially margin lending which is legally capped at twice the equity value.