return icon

Debt offset to hurt small shareholders

 Issuing shares to offset debts has become one of the solutions employed by many businesses nowadays.

Issuing shares to offset debts has become one of the solutions employed by many businesses nowadays.




However, many investors are urging authorities to closely monitor such activities to protect the rights of smaller shareholders.

Tan Tao Investment Industry JSC (ITA) recently announced the issuance of almost 127 million shares to the five organisations that have helped the corporation ease its debt burden. Specifically, these investors are the Tan Tao Group with 51 million shares, ITA Rice with 17 million shares, Tan Tao University with 7.3 million shares, Tan Tao Infrastructure Development JSC with 34.5 million shares, and Southern Delta JSC with 16.4 million shares.

In order to guarantee that a fair price will be provided for the companies that have helped the ITA bailout, a price tracking mechanism has been employed.

Previously, Quoc Cuong Gia Lai JSC (QCGL) had also announced a private transfer of over 145 million shares to VOF PE Holding 5 Limited (VOF) with the explicit purpose of converting bonds and clearing its debts. The converted bond price for VOF was VND8,000 per share and the offsetting debt price was VND10,000 per share.

Current stock market regulations pose little administrative and procedural burden on share issuance to clear debts, making it rather convenient and easy. While the paperwork and the procedures are similar to a normal public offering, businesses need to provide a proof of a contract to settle debts with their creditors, as well as a creditors’ agreement to receive issued shares in return for offsetting debts. In many cases, share prices issued to creditors are lower than the market price, depending on their prior agreement.

In order to protect shareholders in case of a share issuance driving prices down, the Securities Law regulates that parties with intentions to issue shares must seek approval at the general shareholder meeting. However, creditors often have a relationship with the businesses’ larger shareholders, leaving smaller shareholders unable to prevent share issuance, due to their minimal allowed voting percentage.

Regarding the ITA share issuance, in accordance with the provisions of the Annual General Meeting Decree 2014 on share issuance, ITA is legally obligated to exclude the voting rights of shareholders who are related to the five said companies and attain an approval percentage of at least 75 per cent.

Likewise, QCGL sought the approval of shareholders to issue 150 million shares to clear debts, 17 million of which were issued to VOF for bond conversion, while 133 million shares were issued to 100 investors which were QCGL’s creditors.

With the price of the 133 million shares  being set at VND10,000 per share, the value of debts that QCGL can offset came to VND1.33 trillion ($600 million).

Being one of QCGL’s largest shareholders, in accordance with the regulation, VOF was excluded from the vote on share issuance, along with other related investors.

In addition, share issuances that involve a large number of shares need to be closely monitored, especially when the number of shares issued exceeds the value of the businesses’ chartered capital. For instance, the number of additional shares that QCGL issued was 15 million shares greater than the shares currently in circulation. As such, by share volume being largely diluted, shareholders’ rights will be affected.



Aviation industry forecast to fully recover in 2025

It is not until 2025 that the local aviation sector can fully recover due to rising fuel prices and the slower-than-expected reopening of international markets, according to domestic airlines.


Hanoi airport faces serious congestion during summer peak

Hanoi and Hoi An among Top 25 Overall Experiences in Asia

Motorbike tours around Hanoi and cooking classes in Hoi An have made it into the Top 25 Overall Experiences in Asia, as voted on by readers of TripAdvisor.

Vietnam, Hungary seal judicial cooperation deal for 2022-2023

Vietnamese Minister of Justice Le Thanh Long and his Hungarian counterpart Judit Varga on June 27 signed a cooperation programme between the two ministries for the 2022-2023 period.

India conglomerate pledges to invest 10 billion USD in Vietnam

A joint venture between India’s Adani Group and Vietnam’s Anh Phat Investment Construction & Trading JSC has been approved by authorities of Da Nang to start studying the development of a major seaport in the central city.


Govt approves appointment of contractors for North-South expy project

HCM City hi-tech park to speed up investment procedures

HCM City will focus on helping businesses invest in the Saigon Hi-tech Park in Thu Duc City by addressing slow administrative procedures, a conference on facilitating investment heard on June 27.

Korea, Vietnam to mark 30th anniversary of relations with cultural events

The Korea Content Creation Agency in Vietnam will organise a series of cultural-entertainment events this year to commemorate the 30th anniversary of the establishment of diplomatic relations between the two countries.

HCM City to promote AI in education sector

HCM City will need to promote the application of Artificial Intelligence (AI) in the education sector as part of its effort to become a smart city by 2030, experts said.

Additionally-registered and share-purchased FDI soars sharply in first half of 2022

Despite newly-registered FDI dropping in the first half of the year, additionally-registered and share-purchased investments increased significantly on-year.

Vietnam joins hands with France to renovate Hanoi’s Long Bien bridge

Vietnamese and French experts will join hands to renovate Hanoi City’s deteriorating Long Bien Bridge in the coming months.

Lessons learned from urban railway projects

The urban railway projects that have been and are under construction are all behind schedule, so the total investment must be adjusted.

Prices hit record high, Vietnam earns big money from catfish

Export prices have been escalating in all markets and hitting new records in the US. Vietnam’s catfish export turnover is expected to reach $2.6 billion this year, the highest in history.

Phu Dien Cham Tower in Vietnam sets world record

The central province of Thua Thien – Hue on June 27 held a ceremony to mark WorldKings’ recognition of Phu Dien Tower built by the Cham people as a world record.

Explosive e-commerce growth drives demand for logistics

The rapid growth in e-commerce is driving an unprecedented increase in demand for logistics services, including express delivery services, according to industry insiders.