Foreign investors taking over Vietnam firms amid market downtrend a concern: experts

Experts have raised concerns over the risk of foreign investors’ takeovers of listed Vietnamese companies as the price of many stocks remain low.

"The downtrend in Vietnam’s capital market as well as the current thirst for capital will trigger unfortunate sales of Vietnamese businesses," said VNDirect Securities chairwoman Pham Minh Huong.

According to Truong Hien Phuong, senior director of KIS Vietnam Securities Corp., with the plunge in stocks due to market sentiment and "force-sell" orders, many business owners are worried their companies may be acquired. As stock prices are low, sometimes investors only need tens of millions of dollars to take over a domestic company.

These concerns are well-founded because, in contrast to foreign investors, domestic individual investors in November net sold VND19.01 trillion ($796.6 million) on the Ho Chi Minh Stock Exchange (HoSE), marking the strongest net selling month this year.

Moreover, the purchase of Exchange-Traded Funds’ (ETF) certificates - a tool that both supports prices and prevents takeovers - is not as easy as before.

The 2019 Securities Law and the 2020 Enterprise Law stipulate that reducing charter capital is mandatory for organizations when repurchasing shares from shareholders. They must register to reduce charter capital corresponding to the total par value of the redeemed shares within 10 days and eliminate the corresponding amount of shares.

In addition, they must also consult shareholders on charter capital reduction to buy ETF certificates. Or they are not allowed to issue shares to raise capital for six months after buying ETF certificates.

However, Phuong said that these acquisitions were yet to become a reality. In addition, foreign investors net bought shares on the Vietnamese market mainly through ETFs which invest in a particular index but do not target business takeovers.

November saw the active participation of a number of domestic and foreign ETFs such as Fubon FTSE Vietnam ETF with a net purchasing value of VND2.8 trillion ($117.3 million); VanEck Vietnam ETF and iShares MSCI Frontier and Select EM ETF, with VND1.5 trillion ($62.85 million) each; and VFMVN Diamond ETF, at VND2.9 trillion ($121.5 million).

Some businesses have actively worked with force-sell companies to reduce share selling so that they have time to arrange financial sources, and submit more shares or other collateral to avoid prolonged net selling, he added.

Vietnam's stock market experienced strong fluctuations in November. The benchmark VN-Index, which tracks the performance of the HoSE, was rattled and sometimes fell to 870-900 points in the first half of the month. However, the index recovered in the second half. Notably, the last five sessions of the month witnessed the VN-Index accelerating, hitting 1,048.42 points on November 30, up 5.3% compared to the start of the month.

The market recovery was attributed to the significant contribution made by foreign investors with a total value of VND16 trillion ($670.4 million), the highest in recent years, which had a positive impact on market sentiment.

The proportion of shares held by foreign investors in many large-cap stocks has increased sharply since the end of November. For example, VND of VNDirect Securities saw the ratio increase from 14.84% to 17.83%, STB of Sacombank from 20.4% to 23.92%, and KDH of Khang Dien Holdings from 28.38% to 36.32%.

In addition, some foreign funds have sharply reduced the proportion of cash in their portfolios. The net cash of VEIL, an investment fund under Dragon Capital, accounted for only 5.52% of net asset value as of November 17.