Vietnam securities firms prepare plans to increase capital as annual meeting season nears

Several securities companies in Vietnam have prepared plans to increase their charter capital for submission at upcoming annual general meetings of shareholders to fit in the growing market.

The board of directors of Viet Dragon Securities, listed on the Ho Chi Minh Stock Exchange (HoSE) as VDS, have prepared a plan to increase capital by issuing 114 million shares. Of these, 24.15 million will be issued to pay dividends, 8.85 million issued under the Employment Stock Ownership Plan (ESOP) and 81 million for private placements.

Once complete, Viet Dragon Securities will increase its capital by 50% to VND3.23 trillion ($130.66 million). The private placements will be implemented after dividend payment and ESOP are completed.

The company expects the issuing of shares to strategic partners and professional investors via private placement to help increase financial capacity, scale and competitiveness. The offering price will not be lower than the book value and market price of its stock at the time of offering.

Meanwhile, Vietcap Securities (HoSE: VCI) will submit a plan to issue more than 280 million shares to increase its charter capital from VND4,375 billion to VND7,181 billion ($290.5 million) through three options. First, the company will issue 4.4 million ESOP shares, equivalent to 1% of its charter capital at VND12,000 ($0.49) per share. Another 132.57 million shares will be issued via equity financing at a ratio of 30%.

Finally, it will offer 143.6 million shares via private placement at a price not lower than the book value at the end of 2023, or VND16,849 ($0.68) per share. Private placement shares are restricted from transfers for at least one year from the date of completion of the offering. Vietcap expects to mobilize at least VND2.42 trillion ($97.9 million) from this issuance.

On March 12, shareholders of Guotai Junan Securities (Vietnam) (HNX: IVS) approved a plan to offer more than 69 million shares to existing shareholders at a 1:1 ratio. The company will use 75% of the proceeds to fund margin lending, 10-15% to expand the development of derivative products and the remaining 10-15% to support investment activities.

Other securities companies will also increase charter via equity financing. For example, FPT Securities (HoSE: FTS) plans to issue 85.8 million bonus (40%) shares. VIX Securities (HoSE: VIX) will pay dividends and bonus shares at a total ratio of 20%.

Vital for business

Some core activities of securities companies like margin lending and investment depend on the size of charter capital. According to regulations, to ensure financial safety, the total margin loan balance of a securities company must not exceed 200% of its equity. Total margin lending to one customer must not exceed 3% of equity and total outstanding margin loans for one type of securities must not exceed 10% of equity.

Another factor is that the stock market has continuously grown in size, reaching $240 billion at the end of 2023, or 56.4% of GDP. The market’s liquidity has improved significantly, attracting increasing numbers of domestic and foreign investors. Furthermore, the government has set the ambitious target of having stock market capitalization rise to 100% of GDP by 2025 and 120% of GDP by 2030. It is seeking a status upgrade for the nation’s stock market from “frontier” to “emerging” by 2025.

The new trading system provided by the Korea Exchange (KRX) offers more products to the market. In the near future, when prefunding regulations are loosened for foreign investors, securities companies will become an important factor in minimizing risks. Securities firms wanting to provide new services will have to ensure the required minimum charter capital. For example, when the derivatives market was launched, securities companies were required to have a charter capital of at least VND800 billion ($32.36 million).

The above mentioned factors form the new context for securities companies to expand their charter capital to meet market demand and increase competitiveness.

The rising stock market is also a great motivation for businesses in the industry to increase capital. Several securities stocks have skyrocketed in value since the end of 2022. These include VCI (2.6 times), MBS of MBBank Securities (3.5 times), VDS (3 times), and SSI of Saigon Securities (2.6 times).