When capital raising plans drag down stock prices

When the market is gloomy, stocks with plans to raise new capital and prepare for issuance are sold by investors, some businesses have to stop raising capital to avoid further stock sell-off.

DIC Corp had to stop its plan to raise new capital as its stock price continued to plummet. Photo : Le Toan

Stocks fall as company plans IPO

In the context of a difficult stock market, investors find it difficult to make a profit, the announcement of information by businesses about plans to issue shares to increase capital to supplement investment capital, pay off debts, etc. has backfired. A series of stocks plummeted when investors sold off to avoid having to pay more money to the business or avoid being diluted in private offerings at discounted prices that individual investors cannot participate in.

At Construction Development Investment Corporation (DIC Corp, code DIG), in mid-December 2024, the Corporation received approval to offer 200 million shares to existing shareholders at VND 15,000/share, raising VND 3,000 billion and planning to receive purchase money from investors from January 21, 2025 to February 19, 2025.

However, from December 10 to December 30, 2024, DIG stock price decreased by 10%, from VND 21,000/share to VND 18,900/share, and if calculated from April 12, 2024 to now, it has decreased by 43.8%, from the peak of VND 33,600/share. Thus, although DIG stock price has decreased sharply since the first half of the year and traded at the bottom of VND 19,800/share, after DIC Corp announced the issuance of additional shares, DIG price continued to decrease and fell below the accumulation zone of VND 19,800/share.

Similarly, on December 2, Nam Kim Steel Joint Stock Company (code NKG) was approved to offer 131.6 million shares at VND12,000/share, raising VND1,579.7 billion and the time for ordering and paying is from December 31, 2024 to January 24, 2025. Of which, from November 11, 2024 to January 2, 2025, NKG's share price decreased by 13% from VND16,830 to VND14,650/share and if looking at it more broadly, from June 17, 2024 to now, NKG's share price has decreased by 29.8% from VND20,880/share.

Most recently, from December 20, 2024 to January 2, 2025, the DXG stock price of Dat Xanh Group Joint Stock Company decreased by 12%, from VND 17,850 to VND 15,700/share after the Company approved the plan to offer more than 150 million shares to existing shareholders at VND 12,000/share to raise VND 1,802 billion, the registration deadline is January 7, 2025 and the payment deadline is from January 14 to February 14, 2025.

Thus, in the context of the market being volatile at the end of 2024, many investors are cautious and the pressure to withdraw foreign capital is still quite large, the plan of businesses to issue new shares to raise capital has had the opposite effect, a series of shares were sold by investors and caused a negative effect on the market.

“U-turn” with new fundraising plan

As cash flow weakened and investors reacted negatively to new capital mobilizations, a series of businesses had to suspend their capital mobilization plans. In particular, on December 23, 2024, DIC Corp announced the suspension of its plan to offer 200 million shares to ensure shareholders' interests in unfavorable stock conditions and DIG shares showed signs of stopping their price decline and are showing signs of recovery.

Closing a year of many ups and downs

In early 2024, the stock market soared with expectations of upgrading and the recovery of businesses from the low base in 2023. However, in the second half of the year, the market was gloomy with declining liquidity, many small and medium-cap stocks plummeted, pessimism prevailed, individual investor transactions declined sharply across the board, and foreign investors withdrew a record net of more than VND90,311 billion on HoSE in 2024.

Previously, Hai Phat Investment Joint Stock Company (code HPX) announced the suspension of its plan to offer an additional 152.08 million shares to shareholders to raise more than VND1,500 billion. The Company will use the raised funds to pay principal and interest on bank loans and bonds. The reason for the suspension is to ensure shareholder benefits due to unfavorable market conditions and to ensure the feasibility of the public offering of shares to existing shareholders.

Nam Ha Noi Housing and Urban Development Investment Corporation (code NHA) also announced the suspension of the public offering plan approved by the 2024 Annual General Meeting of Shareholders, citing the change in the offering plan in accordance with the current production and business situation, and the plan to mobilize and use capital in the coming time.

According to the initial stock offering plan, the South Hanoi Housing and Urban Area Corporation plans to offer more than 8.83 million shares to raise VND88.35 billion. Of which, the Company will use VND50 billion to invest in construction of projects invested by the Company; VND30 billion to pay debts; the remaining nearly VND8.35 billion to supplement working capital.

Previously, at the Vietnam Mergers and Acquisitions (M&A) Forum 2024 organized by Dau Tu Newspaper, Mr. Dominic Scriven, Chairman of Dragon Capital Vietnam Company shared: “Another barrier of the capital market and M&A is trust between sellers and buyers. Currently, trust in the market is a bit weak, as evidenced by the fact that foreign investors have withdrawn a net 3.5 billion USD from the Vietnamese market and accumulated to 6 billion USD in 3 years, this is the result of the trust problem”.

It can be seen that when the market is weak, liquidity is low and investors are cautious, raising capital for businesses is not easy, forcing businesses to pause and postpone capital raising plans to avoid stocks continuing to plummet.

Source: https://baodautu.vn/khi-ke-hoach-tang-von-keo-giam-gia-co-phieu-d239729.html