Securities suffer from business slump

VietNamNet Bridge – A decline in businesses performances last year caused a downturn in the quality of securities, affecting investor confidence, says the State Securities Commission.

More than 20 companies were delisted, mainly due to three consecutive years of losses, failing to disclose information and dissolution.

Also, capital channels were obstructed. Raising funds via shares and equitisation fell 42 per cent compared to 2011. If government bond returns had not increased 91 per cent to help total funding to rise by 68 per cent over the previous year to VND166.1 trillion (US$7.9 billion), capital raising would have suffered a setback, the commission said.

The fall in quality of securities was also reflected in the accumulated losses of 143 enterprises by the end of September, up 1.7 times compared to the same period in 2011.

Companies with declining profits numbered 438, up 12 per cent, with return on equity being only 8 per cent, lower than the interest rate and the level of 12.3 per cent in 2011.

However, Military Bank Securities Co deputy general director Quach Manh Hao said the core of securities' quality lay in information transparency.

Losses could be due to both or either of the troubled business environment and the strategy of a company, he said. "Commodities have their price, so shares of unprofitable businesses can be bought, as long as the causes of the losses are fully reported."

By this criterion, there were clearly low-quality goods in the stock market. Investors were shocked several times when companies showed small losses in one report which turned out to be larger in the next.

A case in point was the Viet Nam Construction and Import-Export (VCG) which was found to have made a loss of VND105.57 billion ($5 million) while in an earlier financial statement it had reported a net profit of VND49.34 billion ($2.3 million).

Another example was infrastructure developer Song Da (SDH), whose result in the first half last year shifted from a profit of VND613 million ($29,100) to a total loss of VND16.3 billion ($776,100).

Meanwhile, after being audited, coffee producer Thai Hoa Group (THV) was forced to increase its loss shown for one particular period from the figure of VND84.17 billion ($4 million) to VND129.44 billion ($6.1 million).

A sudden change in business results, if not made public promptly, is a risk for investors. On a broader level, fraud in businesses, if not detected and corrected promptly, can shock the market. In August last year, the illegal activities of bank tycoon Nguyen Duc Kien caused $5 billion in market capitalisation to evaporate in three days.

"Listed stocks are still developing in quantity rather than quality," said commission chairman Vu Bang. "We have been constantly improving corporate governance, disclosure and risk management but compliance of companies remains limited."

To improve the quality of listed stocks, the commission had increased listing standards and co-ordinated with the Ministry of Finance's accounting and auditing department and the Viet Nam Accounting Association to fix errors in financial statements.

The commission said it had issued sufficient legal documents on the stock market operation, but the most crucial factor in policy implementation was supervising the compliance of enterprises.

Source: VNS

Securities, business slump, government bond, increased listing standards