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Takeover rumours drive up trades

Update: March, 22/2012 - 10:34

 

HCM City Securities Co CEO Johan Nyvene
The nation's once-moribund stock market has revived recently, largely driven by a number of high-profile takeover rumors surrounding listed companies, especially banks. Trading has focused heavily on these shares, pushing up their prices. Viet Nam News reporter Mai Huong spoke to HCM City Securities Co CEO Johan Nyvene about the phenomenon and the mergers and acquisations trend in Viet Nam.

What's your take on the latest investment wave based on rumors about hostile takeovers, such as Vietinbank's alleged targeting of Sacombank or Sai Gon-Ha Noi Bank circling around Habubank?

This is not a new phenomenon but it has been noticed by the public and the media recently given the high profiles of the bank names. M&A activities have been carried out in the unlisted market, particularly in the real estate industry, but there the information has been kept mostly out of the spotlight. This is a natural evolution in the development of the corporate sector in all industries as corporate expansion will reach a point where organic growth may take time and may not be cost effective given all the set-up costs and market development costs. Normally, M&A deals occur to satisfy competitive expansion strategies and/or to improve the efficiency of business lines by way of streamlining, cost cutting, vertical integration and taking advantage of economies of scale. The phenomenon of low share valuation on the market also makes M&A targets very attractive.

How do these rumors affect the stock market?

Real M&A activities are healthy for investor sentiment and market movement as they provide effective exit strategies for investors, as well as opportunities for entrepreneurs to source capital and expertise for growth. Rumours need to be handled carefully, however, as they can affect investors and market sentiment in extreme directions.

In an environment in which public disclosure of corporate information is still relatively inefficient, investors and markets need to do a lot more homework before acting on rumours. However, to a certain extent, all markets are similar in nature: buy on rumours and sell on news.

Share prices have climbed a lot since the rumours began circulation. Where do these rumors come from?

The sources of the rumours are typically a movement in terms of buying and selling of unusual quantities of the shares of a particular company. Often, this unusual quantity of shares drives up the share price and by the time the movement is noticed by the market, the share price has already appreciated by a good percentage.

Most of the rumours have related to banks. What's the M&A trend in the banking industry?

The trend of consolidation in the banking industry is in line with the strategy and plans mapped out by regulators. This is a healthy strategy as it has often been commented that the banking industry in Viet Nam needs to significantly improve its efficiency and management quality.

Having opened up the banking industry in the last decade or so has led to a degree of unhealthy competition in policies and practices, including aggressive deposit taking and risky lending, especially among small and new banks. The system of money supply has also been affected as surpluses and shortages of liquidity can occur within the banking system simultaneously, indicating an issue of inefficiency. Consolidation will most likely improve the efficiency of Viet Nam's banking industry.

Facing such rumours, what should investors do to protect their rights? What measures are the authorities taking to protect investor interests?

As with any type of investment, investors need to be reasonably knowledgeable about what they buy, and buying into good fundamental companies should be a significant factor in any investment philosophy.

When speculation is the main theme, investors will need to be alert and reasonably disciplined in their strategies in profit-taking or cutting losses. At any rate, caveat emptor needs to be a motto in these cases.

From the authorities' side, monitoring and enforcing timely disclosure of sufficient and accurate information from the companies in question is highly important. The more transparent and official the information disclosure is, the better it is for investors. But then again, if this were the case, the market might not by every exciting to Vietnamese investors, mightn't it? — VNS

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