Distributed shareholders challenge new fundraising plan

The old scenario could repeat itself this year, where a dispersed shareholder structure and a lack of controlling stakes by major investors make it difficult for many businesses to successfully hold their annual general meetings.

The fundraising plan remains unfinished.

As the peak season for annual general meetings of shareholders in 2024 approaches, a number of meetings have begun to fail due to shareholder non-attendance.

On April 6th, Ba Ria - Vung Tau Housing Development Joint Stock Company (Hodeco, ticker HDC) held its Annual General Meeting of Shareholders, but only 47.91% of the total voting shares attended. The company plans to hold a second meeting on May 2nd. It is known that as of December 31st, 2023, Hodeco had only one major shareholder, Chairman Doan Huu Thuan, owning 9.84% of the charter capital, while the remaining 90.16% belonged to a group of small shareholders owning less than 5% of the charter capital.

Previously, on April 5th, CEO Group Joint Stock Company (stock code CEO) also held its Annual General Meeting of Shareholders, but only representatives from 33.98% of the total voting shares attended. Therefore, the meeting was unsuccessful, and the company had to plan a second meeting on May 3rd. In the updated list of major shareholders following the October 2023 offering, CEO has two major shareholders: Chairman Doan Van Binh, owning 18.9% of the charter capital, and Truong Thuan Trading and Investment Company Limited, owning 8.26% of the charter capital. The remaining 72.84% of the charter capital belongs to minority shareholders owning less than 5% of the charter capital.

According to the new fundraising plan, Hoa Binh Construction Group wants to extend the offering period from 2024 to 2025, instead of ending the offering in the first quarter of 2024.

In addition, the Group reduced the volume of shares offered in the private placement from 220 million to 200 million shares, and increased the number of debt-swapped shares by 41.5 million, to 74 million shares.

The fact that Hodeco and CEO Group failed to successfully hold their first Annual General Meeting of Shareholders due to a lower-than-minimum shareholder attendance rate means that the business plan and capital raising plan may not be implemented until at least the Annual General Meeting of Shareholders is successfully held.

As of the end of 2023, Hodeco had cash reserves of VND 17.5 billion (accounting for 0.37% of total assets), and total borrowings amounted to VND 1,704.7 billion, equivalent to 89.4% of equity (the industry average for total borrowings to equity is 69%). In 2023 alone, the company planned to invest VND 2,856 billion.

To support its investment plan, in 2024, Hodeco plans to raise VND 1,000 billion through bank loans and bond issuance. Specifically, for the bond issuance plan, the company expects to issue a maximum of VND 500 billion in private placement bonds.

Initiatives to engage with shareholders

Having faced similar situations of dispersed shareholders and repeated inability to hold general meetings due to insufficient shareholder attendance, some companies, even those not yet holding their general meetings this year, have come up with initiatives to reach out to new shareholders.

At the Development Investment Construction Corporation (DIC Corp, ticker DIG), the Annual General Meeting of Shareholders is held annually only in Vung Tau City (Ba Ria - Vung Tau province). This hinders the participation of small and medium-sized shareholders, as the company's shareholder structure is fragmented after the family of Chairman Nguyen Thien Tuan continuously reduced their ownership in late 2022 and early 2023.

This year, DIC Corp introduced an initiative to combine in-person and online participation to enable individual investors from anywhere to attend the General Meeting, increasing the chances of a successful event compared to last year. It is known that on December 31, 2020, DIC Corp had four major shareholders, with the percentage of shares held by minority shareholders being 39.73% of the charter capital. By December 31, 2023, this percentage had increased to 82.16% of the charter capital.

Similarly, LDG Investment Joint Stock Company (code LDG) and Hoa Binh Construction Group Joint Stock Company (code HBC) both held their Annual General Meetings of Shareholders online in 2024. Hoa Binh Construction Group is a particularly interesting case.

Specifically, Hoa Binh Construction Group held an extraordinary general meeting of shareholders on October 18, 2023. The meeting required a second attempt to qualify for approval of the new capital raising plan and debt swap plan. However, in the presentation to the upcoming general meeting of shareholders on April 25, the Group canceled the previously approved capital raising plan and instead proposed approving a new one.

In fact, at the end of 2023, Hoa Binh Construction Group had accumulated losses of VND 3,240.3 billion, equivalent to 118.2% of its charter capital. The auditing firm questioned its ability to continue operating due to these accumulated losses and overdue debts. The continued inability to hold a General Shareholders' Meeting is creating difficulties in securing new cash flow for restructuring, as well as the risk of further penalties from the HoSE (Hanoi Stock Exchange).

Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII) also has a dispersed shareholder structure and has repeatedly failed to hold successful General Shareholders' Meetings. 2023 also saw a series of executives selling shares to raise funds for convertible bonds, further increasing the percentage of shares held by shareholders.

As of December 25, 2023, Ho Chi Minh City Infrastructure Investment Joint Stock Company recorded that almost all members of the Board of Directors and the Executive Board did not own shares, except for Chairman Le Vu Hoang, who owned 0.13% of the charter capital, and Board member and Deputy General Director Nguyen Mai Bao Tram, who owned 0.25% of the charter capital…

In recent shareholder meetings, the company has offered cash incentives to encourage investors to attend or authorize company representatives. However, these incentives have not been very effective, so the extraordinary general meeting at the end of February 2024 had to be attempted a second time before it was successful.

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