Dragon Capital-backed HSC securities firm struggles with capital base hike

Ho Chi Minh City Securities Corporation (HSC) has faced difficulties in raising its charter capital due to issues related to state ownership.

The firm, listed on the Ho Chi Minh Stock Exchange as HCM, is currently 32.18% held by local asset manager Dragon Capital Markets Limited and 17.26% by Ho Chi Minh City Finance and Investment State-owned Company (HFIC).

HSC fell from second to fifth place among the top securities brokers in Vietnam, with its market share declining from 10% in 2019 to 6.17% as of the end of June this year.

The firm’s leadership attributed this decline to intense competition, an increasing shift towards exchange-traded funds (ETFs), and, particularly, limitations on capital.

Vietnamese legislation curbs margin lending by a securities company at 200% of its owner's equity. As of June 30, HSC's outstanding margin loans reached VND18,542 billion ($745.3 million), 1.74 times its owner's equity. This ratio was much higher than that of its peers such as SSI (0.82x), VPBankS (0.55x), SHS (0.33x), VPS (1.2x), and Techcombank Securities (1.0x).

While many local securities businesses increased their capital bases in 2021-2022, HSC faced challenges due to unsolved issues with its second-largest shareholder, HFIC.

Specifically, in December 2021, HSC issued 152.5 million shares at VND14,000 ($0.56 at the current exchange) each, raising VND2.13 trillion ($85.8 million). However, the 2021 and 2022 earnings reports showed that nearly 32.8 million shares, valued at VND459.2 billion ($18.46 million) and owned by HFIC, were subject to trading restrictions by Vietnam Securities Depository and Clearing Corporation (VSD) at the order of the State Securities Commission of Vietnam (SSC).

Consequently, HSC was not allowed to use the capital contributed by HFIC to proceed with its plan to increase its capital base.

In 2022, HSC sought shareholders' approval to offer 228.7 million shares through a rights issue at VND10,000 ($0.40) per share. However, due to the stalled 2021 capital increase plan, the firm did not submit its application for the capital raise to the SSC until early 2023.

In early April this year, the offering was completed, with 178 million shares sold and 50.43 million shares unsold. It was likely that its state-controlled shareholders (HFIC, CBBAnk and Saigon Co.op) did not buy shares.

As of June 30, HSC had a charter capital of VND7,048 billion ($283.3 million), compared to VND4.58 trillion ($154.12 million) at end-2023. Its total assets were valued at VND27,756 billion, up 55% from end-2023, according to its H1 audited financial statement.

HFIC now owns 121.6 million HCM shares and is expected to definitely divest from HSC after the Ho Chi Minh government approves the divestment plan this year. The divestment will take place in phases, to be completed by end-2025, said an HFIC representative.

Shares of HSC, listed on the Ho Chi Minh Stock Exchange under HCM, closed down 0.85% at VND29,200 ($1.17) on Thursday.