Where has the money gone after landmark stock issuances?

DNP, VRC, and HKB were all very active on the M&A scene, but with what results?

DNP: Continuously engaging into M&As of water and plastic sector companies

Dong Nai Plastic JSC (ticker DNP) is one of the businesses most active on the M&A scene in the past years.

Within four years, its charter capital increased 25-fold from VND34 billion to VND880 billion, through three stock issuances to existing shareholders, two private placements, and one stock distribution to the company’s employees under the employee stock option plan (ESOP), besides several rounds of dividend and bonus payments in the form of stocks.

Amid rapid capital hikes in the past four years, DNP has been actively engaged in a string of M&A deals with businesses in the water and plastics fields.

By the end of June 2018, besides its Dong Nai Plastic Plant, the company possesses two other businesses, Tan Phu Plastic where it holds a 72.65 per cent stake and Dong Nai Mien Trung Plastic where it holds 99.33 per cent.

In the field of water, DNP possesses more than 10 member and affiliated companies, such as Binh Hiep JSC where it holds 53.06 per cent, Dong Tam Water Refinery Plant (39.5 per cent), Long An Water Supply and Sewerage JSC (30.94 per cent), and Can Tho Water Supply and Sewerage JSC (16.89 per cent).

In the first half of this year, DNP injected a total of VND109 billion ($4.8 million) into four water affiliates.

It also pumped nearly VND296 billion ($13 million) into two water plant projects in Bac Giang and Long An province.

Amid rapid investment expansion, DNP’s after-profit figures have also witnessed constant increases, from VND22 billion ($973,450) in 2014 to VND45 billion ($2 million) in 2015 and VND86.3 billion ($3.8 million) in 2016.

Last year, the company’s profit could not follow this upward trend, slightly falling to VND83.3 billion ($3.68 million) and in the first six months of this year, DNP only reported VND29.7 billion ($1.3 million) in profits, half of the same period last year.

VRC: ADEC acquisition

In September and October 2017, VRC Real Estate and Investment JSC (VRC) sold 35.5 million shares in two deals (10.15 million stocks to existing shareholders and 25.34 million stocks to strategic investors), raising its charter capital by 3.4 times from VND145 billion ($6.4 million) to VND500 billion ($22 million).

VRC planned to reap VND390 billion ($17.2 million) from the share sale, VND345 billion ($15.3 million) of which will be used to buy a 65 per cent stake in ADEC JSC, a real estate firm, with the maximum share price of VND24,000 ($1.06), while VND44.5 billion ($1.96 million) will be used to supplement the company’s working capital.

It is noteworthy that several months before VRC’s plan for charter capital increase and to acquire ADEC was unveiled, in early May 2017 VRC’s general director and chairwoman Nguyen Ngoc Quynh Nhu was appointed to become ADEC’s general director cum chairwoman.

In October 17, 2017, the company finalised two VRC stock issuance deals, and two days later it bought 13.3 million ADEC shares at a price level close to the set price, at VND319.7 billion ($14.1 million).

The 13.3 million shares equalled 60.06 per cent of ADEC's charter capital.

The proposed VND24,000 is twice ADEC’s book price at the end of 2016, when the company reported VND221 billion ($9.7 million) in charter capital and VND348 billion ($15.3 million) in total asset value.

Compared to other listed real estate tickers, this price level was deemed high as ADEC incurred more than VND8 billion ($354,000) in losses in 2015 and only posted VND5 million ($220) in after-tax profit in 2016.

Also in late 2016, the company had used the money left from stock issuances to raise its capital contribution in VRC Saigon Limited, its member unit, which was founded in June 2016.

In the second quarter of this year, VRC, however, transferred 15 per cent of its capital contribution in VRC Saigon Limited to another firm.

The capital transfer was the main reason doubling VRC’s first half profit on-year. The shareholders, however, are dubious about the efficiency of VRC’s investment in ADEC.

HKB: Using proposed supplemental capital to feed two M&A deals

Hanoi-Kinh Bac Agriculture and Food JSC (ticker HKB) sold 30 million shares (1.5 times the volume of the number of stocks currently in circulation) to existing shareholders in March 2016. Initially, the company envisaged using the raised capital volume of VND300 billion ($13.2 million) to supplement its working capital.

Shortly after that, in May 2016, HKB announced two investment deals worth VND220 million ($9.7 million) and VND80 billion ($3.5 million) into Lumex Vietnam and Hung Loc Phat Gia Lai Agriculture JSC.

Then in October 2016, HKB pumped VND110 billion ($4.8 million) into Lumex Vietnam. In total, HKB now holds 83.42 per cent in Lumex Vietnam and 88.89 per cent in Hung Loc Phat Gia Lai JSC.

These two investment deals equalled 70 per cent of HKB’s equity by the end of 2016. The company, however, has published limited information about these two target companies to shareholders.

In the last two years, HKB saw continual decreases in its revenue and profit figures, with the most recent five quarters in the red. The company’s ticker took a plunge from more than VND30,000 ($1.3) in mid-2016 to a mere VND1,400 ($0.06) on September 21, 2018.