Chucking out Disqualified Stocks in Vietnam

The Hochiminh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) are lackluster as the prolonged downward spiral is yet to end soon.

The long losing trend coupled with disappointing corporate data of listed companies is driving many stocks to the brink of delisting, either voluntary or compulsory. Many securities firms are moribund at this time.

Affected by operating losses and executives fraught with huge debts, many companies have fallen into appalling hardships. They have to choose voluntary delisting or forced compulsory delisting of their shares from the stock market. Song Da 3 Joint Stock Company (SD3) was expelled from HNX on October 26. Earlier, on May 11, Cavico Viet Nam Mining and Construction Joint Stock Company was forced to delist shares from HOSE.

The reason for expulsion of these two companies were their disrespect to disclose information regulations, not only operating loss. MCV seriously disregarded the stock market rules. This company was repeatedly reminded to disclose financial reports for the fourth quarter of 2011 and audited financial statements for the fiscal year 2011. It was even placed under trading suspension for a long time for breach of laws.

Other notable delisting cases are Mekophar Chemical Pharmaceutical Joint Stock Company (MKP, HOSE), Cadovimex Seafood Import – Export and Processing Joint Stock Company (CAD, HOSE), Basa Joint Stock Company (BAS, HOSE).

When market prices of listed shares plunge and companies fail to raise funds by secondary equity offerings, the stock market turns unattractive to many companies. Apart from forced expulsions, some companies plan voluntary delisting. Earlier in October, Godaco Seafood Joint Stock Company (AGD, HOSE) announced the Resolution of the Extraordinary General Meeting of Shareholders concerning the ratification of entire delisting from HOSE. "The company leaves the stock exchange to raise capital from foreign investors, not because of business slumps," said Nguyen Tung Duong, Deputy General Director of Godaco Seafood.

Industry Construction Corporation - DESCON (DCC, HOSE) also caught the attention of investors as its all 10.3 million shares were forced to be delisted from HOSE on December 15, 2011 for violation of regulations on information disclosure. Notably, DCC did not suffer business losses and the company was expected to become a top 5 construction business in Vietnam. Its business results were quite good.

The tardy information disclosure was attributed to the extraordinary meeting of shareholders and the management board reshuffle. Then, it was very bad for DCC shareholders when the company was included in the watch-list on August 31, 2011, placed a market-broad warning on September 12 and suspended from trading on September 14. The board of directors decided to delist it shares on October 12. In the climax, the company was forced to leave the market for serious violation of information disclosure regulations.

On October 26, 2012 SME Securities Joint Stock Company (SME, HNX) delisted its shares from HNX. SME Securities with listed nominal value of VND225 billion was repetitively violated regulations on the stock market. The brokerage house is also a member to both HNX and HOSE.

Third-quarter earnings reports remain pessimistic. Many companies were burdened with quarter on quarter losses. A longer list of companies queuing for delisting is predictable. According to market operators, delisting cases have increased quickly this year while new listings are on the decline, compared with previous years. The magnetism of the stock market has been pretty weakened in the eyes of both companies and investors.

Life time many companies is over
SME shares are now almost valueless with a market price of VND200. The liquidity of this stock is extremely thin. Many securities firms are in the struggle of life and death or have already accept to go bust.

Third-quarter financial statements showed that many securities companies suffered heavy losses. Up to 28 brokerage houses, both big and small, took substantial losses. In the reporting quarter, Kim Long Securities Corporation (KLS, HNX) sustained a loss of VND91.52 billion and incurred VND41.54 billion in the nine-month period ending September 30. Saigon - Hanoi Securities Joint Stock Company (SHS, HNX) made a loss of VND59 billion in the third quarter and VND28 billion in the January - September period. Vietnam Dragon Securities (VDS, HNX) suffered losses of VND10.76 billion in the third quarter and VND7.47 billion in the first nine months.

Loss was attributed to the prolonged downward gradient of the stock market. Brokerage revenues were not enough to cover operating costs. When prices of listed shares went low, many securities companies increased holdings on hopes of rebound. But, when prices slid further, many suffered serious losses in stock investment business. Most of losses were caused by high risk provisioning.

Kim Long Securities reported that its revenues were VND34 billion in the third quarter, down 64 per cent from a year ago. Its brokerage service revenue made up for just 3 per cent, or less than VND1 billion. In the quarter, the broker’s operating expenses more than trebled the amount from the same period in 2011 to VND130.8 billion. Of the sum, VND120 billion went to provisions for share price decline.

KLS was typical of securities companies. Dr Vu Thi Kim Lien, Deputy Chairwoman of the State Securities Commission (SSC), said, up to 40 out of105 securities companies faced with liquidity problems and failed to meet financial safety ratio requirements. As many as 71 securities firms incurred losses due to devalued stock prices and ineffective investments.

Prolonged hardships have made many securities live in the moribund state. Top 10 brokerage houses occupy 60 per cent of the market share. Many small securities companies have run out of money and they will go to wall soon because of tiny brokerage market share.

Since the beginning of this year, some brokerage houses applied for ending securities brokerage business. This means these companies will stop operation soon. SSC is reviewing and planning to release first securities companies put under special control, a move to ensure their customer rights.

At present, SSC is finalizing the legal framework to pave the way for getting rid of problematic securities companies, including amendments to Decision 27 on regulations on organization and operation of securities companies related risk management, investment restrictions, restructuring of securities companies, and cash management. It is also formulating regulations on risk management applicable to securities companies to match international practices. This agency will also promulgate a regulation on remote warning to classify and evaluate securities companies.

According to experts and authorities, the number of securities companies will fall to a third from the current number.

Unlike banks, securities companies hardly find out good partners for M&A deals. Banks have overwhelming advantages like capital, branch and customer base. Weak operations, thin customer base and low technology are unattractive. Many companies will have to say farewell to the stock market in the coming time.

Source VCCI

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