Ms. Doan Phuong Nga (47 years old, Thanh Xuan District, Hanoi ) is a long-time stock investor who is not satisfied when the company in which she is a shareholder announced the issuance of millions of additional shares. This is her concern along with many other investors as this could cause shareholders' assets to decrease.
Fear of stock dilution
Ms. Doan Phuong Nga said that the company she is holding shares in plans to issue several million more shares in the near future to pay dividends to investors and offer them to the market. "I currently do not have a need to buy more shares of this company because the business situation of the company is not very stable. More shares being released to the market can easily lead to stock dilution, meaning that the number of shareholders in the company increases but the ownership ratio of current shareholders decreases," Ms. Nga said.
Ms. Nga's concern is also the concern of many other investors in the face of listed companies competing to issue more shares to the market.
Although investors' concerns are well-founded, according to expert Dang Van Cuong, Head of Brokerage Department of Mirae Asset Securities Vietnam (a multinational financial group headquartered in Seoul, South Korea), this also depends on the purpose of the issuer and how it is implemented.
Issuing additional shares can lead to many positive and negative situations, depending on many factors (Illustration: Internet)
Associate Professor Dr. Nguyen Huu Huan, Head of the Financial Market Department, Ho Chi Minh City University of Economics , said that issuing shares does not always lead to dilution of shares or, in other words, bring disadvantages to investors. Because if shares are issued in the form of bonuses, this does not dilute the shares and the rights of investors. In the case where the company issues publicly to all investors who are entitled to buy additional issued shares, it also does not dilute the shares.
As for the plan to issue shares according to the shareholders' holding ratio, if existing investors decide to buy more, it will limit the dilution of shares because the enterprise will usually give priority to buying rights for existing shareholders, then issue outside. In case investors do not have the need to buy more, it will lead to increased dilution.
In summary, to generally assess the possible cases when a business issues shares , Associate Professor, Dr. Nguyen Huu Huan stated:
Firstly , if the company operates well and uses mobilized capital effectively, it will help increase profits and thus shareholder profits will also increase.
Second , the large amount of shares issued will increase the dilution of shareholders' shares, their rights to profit and voting rights will be significantly affected. In case the company does not use capital effectively, it will reduce shareholders' assets.
Third , if the number of shares issued is larger than the demand, it will easily lead to a decrease in the stock price. This also affects the interests of investors.
According to Mirae Assett Brokerage Manager Dang Van Cuong , investors need to observe and evaluate the effectiveness of using capital from issuing shares. The business results of the enterprise will be reflected in the financial report.
If a business uses additional capital effectively, creating positive changes in business results, this is a positive signal that helps the business's stock price increase in the market, bringing profits to investors.
On the contrary, if the use of capital is unclear and ineffective, it can reduce the valuation coefficients for the company, negatively affecting the stock price.
Therefore, according to experts, it is difficult to assess whether investors can gain or lose when a company issues additional shares. This depends on the investor’s investment strategy, the buying and selling price, the volume of their stock transactions, or market developments…
Recommendations from experts
Assessing the current situation of the trend of issuing large numbers of shares to the market by a series of enterprises, Associate Professor, Dr. Nguyen Huu Huan recommends that investors:
- Need to pay attention to business situation and prospects of the enterprise.
- Consider a reasonable price that is not too high when trading.
Mirae Assett Brokerage Manager Dang Van Cuong gave some more recommendations:
- Understand the specific issuance plan of the enterprise to specifically assess the stock dilution factor.
- Carefully evaluate whether the business's capital usage plan is appropriate or not, and the business strategy of the business is promising to make appropriate investment decisions.
Source: https://phunuvietnam.vn/hang-ty-co-phieu-do-bo-thi-truong-bai-cuoi-duoc-mat-voi-nha-dau-tu-20240524003756952.htm
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