Despite the disadvantageous conditions of the stock market, a lot of enterprises still have decided to issue shares to call for capital to satisfy their thirst for capital, though they know they do not have high hopes of fulfilling the task.
On May 19, after two unsuccessful shareholder’s meeting organization attempts, the third shareholder’s meeting of Sara Company (SRA) still took place with the participation of 11 shareholders, representing 24.66 percent of shares at SRA.
One of the most important topics discussed at the meeting was the company’s plan to issue 4 million shares in the third quarter of 2012 to mobilize more capital for its operation. It is expected that 3 million shares would be offered to existing shareholders at 11,000 dong per share, another 100,000 shares would be sold to the company’s staff, while the remaining shares would be put into auction with the starting price of 11,700 dong per share.
SRA’s Board of Directors hoped to attract 44.7 billion dong in capital from the share issuance.
The share issuance plan has caught the special attention from investors, not because SRA is a big company or because they can see profits from the deal, but because the capital to be called is too big in comparison with the company’s scale.
If the company succeeds with the issuance plan, it would triple the current chartered capital of 20 billion dong. Especially, the share price offered by the company is three times higher than the current market price, staying at 4800 dong per share.
Who will accept the sky high share prices and accept the limited liquidity to buy SRA’s shares, then?
The doubts have also been raised about the feasibility of the plan to issue shares to increase chartered capital of Huu Nghi Vinh Sinh Mining and Mechanical Engineering (MAX). A decision was made at the recent shareholder’s meeting that MAX would issue 7.2 million shares to the public by the third quarter of the year.
If successfully issuing the shares, the new chartered capital of MAX would be double to 144 billion dong. MAX plans to offer the shares at 10,000 dong per share, equal to the face value. However, analysts have warned that when the share market price is lower than the face value, at 9500 dong per shares, the share issuance plan may fail completely.
Where to seek capital?
Most enterprises are now thirsty for capital and need money to cover their expenses, balance the finance situation and invest in new projects. Big and powerful enterprises have many different ways to call for capital. Meanwhile, the enterprises, which determine on calling for capital despite the disadvantageous conditions, are mostly the ones which really very need capital.
The Thai Hoa Group (THV), for example, now needs capital urgently in order to ease the short term debts. THV has decided to offer to sell 42.25 million shares at 6000 dong per share to individual investors.
However, analysts have warned that it’s not easy to sell separated shares to individual at this moment, especially when the offered share price at 6000 dong per share is 3 times more expensive than the market price.
Other companies all have to look for wholesale buyers when issuing shares. Mirae-KMR, for example, would sell shares to two individuals who are the members of the board of directors, while VTF would sell 3 million shares to HVG.
Investors now hesitate to pour money into stocks, partially because they have heard about the bad business performance of enterprises. Therefore, experts have predicted that SRA may have to delay the share issuance. The company once again, for the fourth consecutive quarter, took loss in the first quarter of 2012.
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