Mobilizing capital of enterprises on securities market of vietnam

The scientific and realistic significances of the thesis - The thesis proposes a new approach to the fund mobilization of enterprises in securities market: promoting the fund mobilizati

FOREWORDS

1 The necessity of the thesis

In order to reach the target of becoming an industrialized and modern oriented

country in 2020, strongly developing in the successive years, the development of a

system of enterprises plays an important role Vietnam securities market is established

and developed with the purpose of creating an important fund mobilization channel for

the economy and enterprises, which is a key step making contribution to enhance the

socialism oriented market economy in Vietnam

After 12 years operation, Vietnam securities market basically has formed itself as

a fund mobilization channel for the economy in addition to traditionalbank channel,

making worthy contribution to equitization and increase of state owned enterprises’

efficiency However, during the past time, under the fluctuation of securities market,

fund mobilization of enterprises has met difficulties due to small scope and simple

methods which results to limited achievements

With the topic “The fund mobilization of enterprises in Vietnam securities

market”, the author would like to propose scientifically and realistically based solutions

to partially contribute to solve the above mentioned problems

2 Research purposes, objects and scope

The purposes of the thesis are as follows:

- Systemize the theory about fund mobilization of enterprises in Vietnam

securities market

- Analyse the status of fund mobilization of enterprises in Vietnam securities

market

- Propose a system of solutions to force the fund mobilization of enterprises in

Vietnam securities market

Research object: The fund mobilization of enterprises in Vietnam securities

market

Research scope: The fund mobilization of enterprises in Vietnam securities

market during the period of 2010 - 2012

3 Research methods

Research methods used in the thesis include: dialectical materialism,

comparisonism, systematically issue collection, inductive reasoning The thesis also

uses interview and study (via sending inquiries to relating people/enterprises) methods

to get information for clarificatin of research object

4 The scientific and realistic significances of the thesis

- The thesis proposes a new approach to the fund mobilization of enterprises in securities market: promoting the fund mobilization must be closely tailored to the efficiency of fund utilization, considering this as an important factor creating sustainability in the fund mobilization activities; simulating the fund mobilization process of enterprises in securities market; clarifying the role of 3 important entities: (1) Buyers including organizational and individual investors; (2) Seller as organizational issuer; (3) intermediaries as securities companies

- The thesis rigorously analyzes and systemizes the factors that affect thefund mobilization of enterprises in Vietnam securities market Then applying theories, analysis on the role and affecting measures of each factor to propose solutions to facilitate the fund mobiliaztion process of enterprises, confiming this as an important fund mobilization channel of the economy

- The research results help to closely connect enterprises and investors in terms

of fund mobilization, surmounting obstacles in the fund mobilization process of enterprises The thesis also helps to create direction for secrurities companies’ operation so that they can promote their roles in the market, together with ensuring the business efficiency and risk controlling when taking part in the fund mobilization process For market regulatory authorities, the thesis has proposals to enhance their role

of creating market, ensuring an equally, clearly, publicly and effectively operated market

5 Introduction of the thesis structure

The name of the thesis: “The fund mobilization of enterprises in Vietnam securities market”

Besides the Introduction and Conclusion, The thesis includes 3 chapters:

- Chapter I: General theory of the fund mobilization of enterprises in Vietnam securities market

- Chapter 2: The status of the fund mobilization of enterprises in Vietnam securities market

- Chapter 3: Solutions to promoting the fund mobilization of enterprises in Vietnam securities market

CHAPTER I GENERAL THEORY OF FUND MOBILIZATION OF ENTERPRISES IN

SECURITIES MARKET

1.1 OVERVIEW OF SECURITIES MARKET

1.1.1 History of establishment and development of securities market

- The securities market has hundreds of years history and has confirmed the

indispensable role in the market oriented economies The development process of

securities market has witnessed the fluctuations, but after overcoming crises, it has been

restored and continued to develop

1.1.2 Definition and nature of securities market

- Securities market is the place where transactions of selling, buying, exchanging

securities take place The nature of securities market is that it shows the connection

between the demand and supply of investment capital at which the stock price contains

information of capital cost or price of investment capital cost Securities market is the

high level development of commodity production and circulation

1.1.3 Position and structure of securities market

1.1.3.1 The positon of securities market in financial market

- Securities market is a part and also the center of financial market where the

issuance and exchange of capital and loan instruments take place

1.1.3.2.The structure of securities market

- We can analyze 3 basic dimensions of the structure of securities market, they

are: commodity categorization, organizational type of market and capital rotation

- According to the commodity categorization dimension: bond market, share

market and market for derivatives

- According to the organizational type of market: Stock Exchange, Over the

counter market

- According to capital rotation: Primary market, secondary market These 2

markets have close supportive relation

1.1.4 Entities in securities market

1.1.4.1 Issuer

- Government and local authorities;

- Companies which issue shares and bonds of themselves;

- Financial organizations

1.1.4.2 Investors

- Individual anh households investor;

- Organizational investors: investment institutions, commercial banks, securities companies, investment companies, insurance companies, mutual funds, pension funds, social insurance funds

1.1.4.3 Secutires market related organizations

- Securities market supervisors and regulators;

- Stock Exchange;

- Associatiion ofSecurities investors;

- Organization of securities depository and clearance;

- Supportive organizations;

- Rating agencies

1.1.5 The role of securities market

- Centralizing and distributing capital, restructuring the period of capital in order

to meet the demand of economic development

- Making contribution to more equal fund re-allocation

- Creating conditions for separating the ownership and management of enterprises

- Allowing enterprises to mobilize international capital at lower costs

- Creating conditions for government to mobilize financial resources

- Making contribution to future business period forcast The securities market also have some negative effects Information sometimes is not transmitted to investors with full value which results in the fact that the stock price does not reflect the real ecnonomic value of the enterprise, which is not reliable for effective allocation of resources

1.2 METHODS OF FUND MOBILIZATION OF ENTERPRISES IN

SECURITIES MARKET

1.2.1 Enterprises’s channels of fund mobilization and features of securities

market channel

- Operative capital of enterpries consists of: ownership capital, loans from banks,

leasing capital, securities market based capital (through publicly issuing securities)

- Features of securities market based capital: Actively, timely, meeting the

demand of the time length of the investment projects; high value amount of fund

mobilized, low cost of mobilization However, the capital mobilization procedure is

relatively complicated, requiring high credibility of enterprises and operating through

financial intermediaries

1.2.2 Methods of enterprises in fund mobilization in securities market

1.2.2.1 Securities Offering

- Individual offering:Securities are offered to limited investors (normally

organizational investors), with special conditions and not for the whole public

- Public offering: Securities are offered to the public, in which a certain

propotion of securities is offered to small investors This includes Initial Public

Offering (IPO) and Primary Public Offering (PPO)

1.2.1.2 State regulation on securities offering

- The target is to ensure the equality for all entities participating in the market, to

ensure all resources mobilized in the market used most effectively for the economy

Currently there are 2 regulation measures towards primary securities market, they arer

“Full Information Announcement” and “Quality Management”

1.2.1.3 Conditions for IPO

- Quantitative criteria: Scope (mainly relating to captial); business performance,

IPO value, the minimum number of investors, the commitment of initial shareholders to

hold a certain ratio of shares

- Qualitative criteria: Capability and experiences of corporate management;

organizational structure of the company; the reliability of corporate financial statement;

possible plans of utilizing effectively the capital mobilized from the IPO

- Securities Issuance Guarantee: The guarantor commits to the offering

organizationsof buying partially or all of the securities offered for re-sale, or buying the

remanings of securities which are not distributed yet of the offering organizations, or

supporting the offering organizations in distributing securities to the public The guarantee includes: best effort underwriting, mini-maxi underwriting, all or none and stanby underwriting

1.3 FACTORS AFFECTING THE FUND MOBILIZATION OF ENTERPRISES IN SECURITIES MARKET

1.3.1 Factors from the issuer

- Demand for fund mobilization: Scope of capital mobilized, time period required for capital mobilization

- Issuance costs: Including issuance guarantee cost, consultancy cost, advertising, pringting, supervision and listing costs The value of those costs depends on many factors and it could amount up to 10% of the total value of the offering

- Time period for utilizing the capital mobilized: If companies just have demand

of short term capital, they often borrow from banks; if they need captial for medium and long term projects, the securities issuance method is more appropriate

- Capital cost: calculated on basis that dividend of old shareholders is not lower

- The formation of new supervising shareholders: One of main factors most affecting the company’s choice of capital mobilization method is the corporate operation supervison

- The possibility of the success of Fund mobilization in securities market has connection with investment habit in every country

- The activeness in production and business: With the capital mobilized in securities market, companies invest in their projects without investors’ supervision

- Transaction costs in securities market affect investors’ decision on buying corporate securities

- Financial leverage: Companies can use financial leverage by: share issuance, bond issuance, bank loan, use others’ capital and all of them are aimed at capital mobilization for corporate operation

- Other factors: Companies’ risks when issuing securities, market factors, inflation, government’s priority policies in granting credit

1.3.2 Factors from the investor

- Investors will decide to buy securities or other assets of joint stock companies based on the following factors:

+ Investors’ economic capacity

+ Expected dividend of corporate securities compared to profit from alternate

assets

+ Risks attached with corporate securities compared to other alternate assets

+ The loosening of securities compared to other alternate assets

1.3.3 Factors from intermediaries

- Issuance consultancy human resource: It is required that they are capable

enough to cooperate with companies to fulfill this important task

- Financial capacity of securities companies: have strong effect on investment in

issuance consultancy human resource, participation in issuance guarantee, dealing,

distributing and stabilizing the securities prices

- The capacity of providing brokerage service: help to facilitate the transactions

of investors, increasing the market liquidity

- Securities company management: Ensure the securities companies’ capability

of performing the role in linking the seller and the buyer

1.3.4 Other factors

Market authorities and regulators, Stock exchanges, securities depository

center, macro economy, supportive organizations

CHAPTER 2 REAL STATE OF CAPITAL MOBILIZATION OF ENTERPRISES

IN VIETNAM SECURITIES MARKET 2.1 FORMATION AND DEVELOPMENT OF VIETNAM SECURITIES

MARKET

2.1.1 Formation process of Vietnam securities market

Period of early 1990 to 1999 was a preparation step in order that by 2000,

Vietnam securities market officially operated with event of the first securities

trading session in Ho Chi Minh City Securities Trading Center

2.1.2 Transaction happening of Vietnam securities market in period of 2000-2012

- Transaction on Ho Chi Minh Stock Exchange (HOSE): HOSE began to operate

since 2000 and by the time of the end of 2012, it implemented 2,675 securities trading

sessions By December 31st, 2012, there were 308 stocks, 39 bonds being listed and traded

in HOSE with total listed value reached 258,720 billion dongs

- Hanoi Stock Exchange (HNX): By December 31st, 2012, total companies listing their stocks on Hanoi Stock Exchange reached 85,536 billion dongs Operation of Hanoi Securities Trading Centre concentrates into three major areas: organizing stock auction for the first time for issuing organizations; organizing bidding and trading public bonds and bond guaranteed by Government, bonds of local authorities, works bonds

2.1.3 Some achievements and limitations of Vietnam securities market

- Successfully built and put securities market into operation, contributing important part to development of enterprises and economics;

- Form a basic legal system for operation of securities market;

- As for trading mode in securities market: there are modification steps, changes approach to international standards

- Successfully formed professional supporting organizations supplying services to securities trading such as payment bank, Securities Depository and securities companies systems

- Activities of announcing information, supervision of market have certain progress in protecting benefit of investors

Besides some achievements, Vietnam securities market revealed limitations: -Goods and scale of market is small compared to those in the region

-Stock market, despite of strong development in scale over the past time, the efficiency of capital mobilization for enterprises is not high, almost the years was not exceeded 5% total mobilized capital sources in the economy

- As for operations of securities companies, fund management companies: transparence, reliability of these financial intermediates is still much limited

2.2 REAL STATE OF CAPITAL MOBILIZATION OF ENTERPRISES IN VIETNAM SECURITIES MARKET

2.2.1 Demand for mobilizing capital of Enterprises in Vietnam securities market

- Ensure financial safety ratio: General data in financial statements as at December 31st, 2012 of 50 leading scale enterprises whose stocks are listed on Hanoi Securities Stock Exchange and Ho Chi Minh City Securities Exchange showed many enterprises have high ratio of loan/ owner’s equity required to increase in owner’s equity in order to improve financial safety

- Expansion of business and production: it can be seen from summary, almost

100% enterprises listing their stocks in securities market in order to mobilize capital in

securities market to expand business and production, findings from interview with

some leaders of enterprises listing stock and sending investigation sheet showed

majority of the surveyed enterprises (83.3%) have demand for mobilizing capital in

securities market

2.2.2 Method of mobilizing capital of enterprises in Vietnam Securities market

* Individual issuance: Offering individual shares is the offering of share or direct

share buying right and not use mass media for one of subjects: professional securities

investor; less than 100 investors not being professional securities investors

* Public issuance: Offering securities to public is offering of securities in one of

modes: Through mass media, included internet; offering securities to at least 100

investors, excluded professional securities investor; offering to a indefinite quantity of

investors

* Some typical issuing situations

Cases of issuing stocks for mobilizing capital in securities market of enterprises

over the past time can be classified and summarized as follows:

Case 1: Issuing to existing shareholders with face value

This is the most common issuing case, widely used by many issuing organizations

in reality over the past time due to rather simple implementation

Case 2: Issuing to existing shareholders with price higher than face value

This case is very common in context of effervescent market; market price is much

higher than face value

Case 3: Issuing to existing shareholders with price lower than face value

This case happens when stock trading price of the issuing organization in market is

lower than the face value

Case 4: Issuing to shareholders by new face value

This case happens in event that issuing organization wants to attract additional

capital especially investment fund in condition that securities market is quite

Case 5: Issuing to new shareholders with price higher than face value

This mode happens commonly in effervescent period of securities market and

create capital surplus for issuing organization Due to change in the shareholding, it is

required to persuade existing shareholders about benefit of this issuing mode

Determination of price for this issuing period is often rather complicated, there are often 03 common methods: Apply average prices of stock in the most recent transaction sessions; Apply fixed price in the period of issuing to new shareholders; Auction of the additionally issued shares

Case 6: Issuing to new shareholders with price lower than face value

This is a case applied when issuing organization wants to increase capital but existing shareholder are not willing to invest more capital into enterprises and the stock price is lower than face value

Case 7: Issuing to existing shareholders in combination with new shareholders with price equal face value

Option of issuing to both existing shareholders and new shareholders in the same issuing period is also often selected due to its flexibility

Case 8: Issuing to existing shareholders in combination with new shareholders with price higher than face value

With price higher than face value, issuing organization will receive a capital surplus amount, which may satisfy existing shareholders

Case 9: Issuing to existing shareholders in combination with new shareholders with price lower than face value

In context that market price of stock is lower than face value, business activity of issuing organization has difficulty, obtaining the consent of existing shareholders on approving new shareholders to pour capital into enterprise will be less difficult

Case 10: Issuing to existing shareholders in combination with flexible price to each subject

This is the option of issuance possible to solve all problems on ensuring “equality” for existing shareholders and new ones Issuing prices also reflect “priority” level to each issued subjects

2.2.3 Result of capital mobilization of enterprises in Vietnam securities market

* Statistics of results of capital mobilization in Vietnam securities market

-By 2012, there were 710 enterprises listing stocks on Ho Chi Minh Securities Exchange and Hanoi Securities Exchange with total value reaches 26% GDP compared

to the same period of period year

- In period of 2000-2004, capital mobilization of enterprises in securities market was almost negligible, while in period of 2005 up to now, total mobilized capital of

enterprises in securities market reached 158,938 billion VND, in which reached 55,846

billion VND in 2007 alone

- In period of 2008-2009, capital mobilization in securities market sharply

declined with period of market sloping with VNIndex from the peak of 1,170 points

down to 300 points By 2010, capital mobilization activities of enterprises in securities

market prospered against effect of demand stipulation package of the Government

Since 2011 up to new, it comes back to quite state, finishing 2012 year, total mobilized

capital of enterprises in securities market reached only 16,872 billion VND

*Some remarks about the capital mobilization process of enterprises in Vietnam

securities market

- Enterprises are getting more active taking part in market through listing its stocks

on securities markets, making changing step in term of capital mobilization mode

which is shifting from traditional channel of bank to securities market

- There is a trend that enterprises shift and adjust to orient towards models of Joint

Stock Company and public company; enterprises are interested into and pay attention to

acquisition, merging and combination, associating with each other

- Economic growth and movements of macro economy of domestic and

international: Financial crisis began in 2008 led to difficulty for global economy, in

which, Vietnam impacted on capital mobilization process of enterprises;

2.3 REAL STATE OF FACTORS AFFECTING CAPITAL MOBILIZATION

PROCESS OF ENTERPRISES IN VIETNAM SECURITIES MARKET

2.3.1 Investor

Experiencing 12 years of development, the account is at present increasing over

the years and reaches nearly 1.3 million in 2012, in which quaintly of foreign investors

are rather crowded It is noteworthy that quantity of accounts increases as three times

year on year for 2005, 2006, 2007, increase as two times in 2009, which were in

effervescent market

- Individual investors: scale of quantity of investors on population makes up

small percentage, with Vietnam’s population of 90 million people, the number of

account is nearly 1.3 million making up only 1.44% with categories: Individual

professional investors; individual investors being owners of private enterprises;

individual investors being officers, employees in agencies and enterprises;

individual investors in movements

-Investors being organization: About 3,500 investment organizations include:

Enterprises listing their stocks in securities market; Funds are managed, operated by fund management company; securities company, commercial bank; investment companies

- Foreign investors: Quantity of transaction accounts of foreign investors has been rapidly increasing over the recent year, with 16,100 accounts by 2012, folded 14 times compared to the end of 2005, in which, the accounts of investors being organizations were 1,800

2.2.2 Issuing organization

From 5 enterprises listing stocks on in 2000, this number increased to 314 enterprises listing stocks on Ho Chi Minh Securities Exchange in 2012 and 396 ones on Hanoi Stock Exchange Market capitalization was 1,247 billion VD in 2000 increasing

to 764,946 billion VND Over 12 years of operation, Vietnam securities market witnessed the outstanding growth of the listed enterprises from profit turnover growth

to corporate administration From there were a few enterprises in some production branches, up to now, these two securities exchanges have converged hundred of enterprises in many different fields and branches

2.2.3 Securities company system

In 2012, the whole market had 105 securities Companies registered to operate with diversified scale, from 1-2 realized operations to all operations according to regulations of State Securities Commission of Vietnam The most important operations contributing to capital mobilization process are brokering and financial consulting with majority of realized companies, there are 41/105 securities companies realized issuance guarantee operation

Operations of securities companies in the recent years have met some difficulties with more than a half of securities companies at loss in 2012 and 70% of them had accumulated loss

2.2.4 Market management, operation agencies

2.2.4.1 State Securities Commission of Vietnam

As a dedicated management agency in securities and securities center established

on November 28th, 1996 with main objectives of creating comfortable environment for mobilizing capital for development investment, ensuring securities centers to operate in manner of organizationally, safe, public, equally and effectively, protecting benefit and legal right of investors Securitas Issuance Management Department is an administrative organization directly managed by State Securities Commission of

Vietnam implementing tasks and authority in the field of issuing, directly related to

capital mobilization of enterprises in securities market

2.2.4.2 Ho Chi Minh Securities Exchange

On July 28th, 2000, the first trading session with 2 listed stock codes officially

organized in Ho Chi Minh Securities Trading Center; on May 11th, 2007 this center was

transformed into Ho Chi Minh Securities Exchange (HOSE), operating in model of one

member liability limited company, helped HOSE to have a position commensurate to

the world’s securities exchanges in international relation and cooperation, since then,

raising position and influence of Vietnam securities market

2.2.4.3 Hanoi Stock Exchange

Hanoi Stock Exchange (Hanoi Securitas Trading Center) was established on basis

of transformation, re-organization of Hanoi Securities Trading Center (Established and

started operating on March 08th, 2005) On June 24th, 2009, Hanoi Securities Trading

Center made the first debut, operating under model of one member liability limited

company owned by State (representative by Ministry of Finance

2.2.4.4 Vietnam Securities Depository

On July 27th, 2005, Securities Depositor was independently established; On

December 18th, 2008, Vietnam Securities Depository was established on ground of

transforming, re-organizing securities depositor

By 2012, there were 8.48 billion of securities deposited in VSD, an increase of

118.5% against level of 3.88 billion in 2011, raising total securities deposited in

VSD up to 27 billion with total assets deposited in VSD of more than 641 trillion

Vietnam dongs

2.2.4.5 Auditing companies

By 2012, there were 43 organizations accepted to audit companies in securities

market Auditing companies provide auditing service for financial statements of

listed enterprises being mid- year and year end reports

2.4 SOME CAUSES AFFECTING CAPITAL MOBILIZATION PROCESS OF

ENTERPRISES IN VIETNAM SECURITIES MARKET

2.4.1 In perspective of issuing organizations

-Scattering investment result in loss: Many listed enterprises were “stormy” in

implementing operation diversification strategy, doing scattering business, especially

expanding into real estate business over the past time

- Lack of efficient business capital mobilization options: Lack of business projects

really bringing about breakthrough step for enterprises results in difficulty in persuading investors to pour investment capital into buying new stocks issued by enterprises

- Using mobilized capital of wrong purpose: This is the work resulting in losing

credit of shareholders, investors, which has negative impact on capital mobilization in market in general

- Inappropriate selection of time, scale of issuing: Because the issuing period is

implemented in a long time; it is very important to calculate of “market falling point”, the most favorable conditions for investors subscribing stock

- Issuance products are not diversified: Most of issuing periods are ordinary

stocks, lacking of other kinds such as convertible bond, dividend preferential stock…

-Internal shareholders take advantage for personal benefit: This is also a cause

degrading credit of investors in enterprises and securities market

- Pay inadequate attention to benefit of small shareholders: Instead of explaining

contents agreed by big shareholders to others, Board of directors chooses method of voting with enough approving percentage without creating consent, creating negative effect

- Inadequacies in announcing information: Situation of late submission of financial statements, annual reports is rather common, accuracy and transparency

in company’s operation are not ensured

- Some individual managers don’t act for benefit of shareholders: Authority is

misused for personal benefit through investment, procurement of equipment for projects

- State shareholders don’t want to issue because of effect on enterprise control

right: Cause of this situation is that State does not contribute additional capital and is

afraid of decreasing shareholding percentage in enterprise

2.4.2 In perspective of investors system

- Have not attracted new investors to take part in market: Concept of a stock investor has not been popular to a great part of people, happening of market was rather quite over the past time

- Organization investors haven not showed their role clearly: Many points of

time, it seemed that almost stock investors increased or decreased all, lack of appearance of organization investors

- Organization investors are undiversified: The whole market has only 24

investment fund, capital mobilization for forming investment fund faces many

difficulties, funds mainly have foreign capital sources and not mobilized domestic

resources

- Financial potential of almost investors are weak: With low income per capital

of about 1,517 USD in 2012, so investment resource through securities market is weak

- Market monopolization of some speculators: Situation of making price, swaying

stocks happened with scale and frequency having a trend of more and more increasing

- Lack of information, understanding, experience in investment: Transaction

follows rumors, movement without paying attention to business and production

situation of enterprises, which are rather common

2.4.3 In perspective of securities companies

- Financial potential of securities companies system is still limited: Generally

potential of majority of securities companies in market is still limited (352 billion VND

on average and non -uniformly distributed), whereby lack of resources to invest, push

up assisting enterprises to mobilize capita in securities market

- Some securities companies lost credit from investor: Situation of misusing

money and stocks on account of customers, not implementing transfer order of clearing,

customers can’t withdraw on account, employees of company counterfeiting signature

of customers to seek benefit, supporting short purchase in market, etc

- Not pay attention to investing into issuing consulting work: Majority of

securities companies only focus on securities brokering, which can fast collect turnover

while issuing consultancy takes long time

- Unhealthy competition results in low issuing fee impossible to cover costs:

Result in consequence is that consulting turnover can’t cover cost and quality of issuing

consultancy is limited

- Issuing guarantee operation is not popular: Limited in financial potential and

deployment capacity results in unpopularity of issuing guarantee operation

-Administration, management is in-close: Situation of leaders, employees

violating regulations of law result in degraded credit, financial capacity in some

securities company are caused by in-close administration, management of the securities

companies

2.4.4 In perspective of market management, operation companies

* Legal documents system:

- Securities law promulgated and effective since 2006 opened a new development stage for Vietnam securities market However, together with market development, Securities law is required to supplements, amend

- Guiding documents on implementing Law are something slowly promulgated, even discrepancy, overlapped causing difficulty to issuing process of enterprises -Because Ministry of Finance is a ministry managing multi-sector, multi-field, some legal documents have not timely adjusted capital mobilization of enterprises in securities market

* Market managing, supervision and operation work

- Activities of supervision, inspection and treatment of administrative violations I the securities field showed its limited effect over the past time Cause was that authority of State Securities Commission of Vietnam was limited, not strong enough to warn, stop violations from happening in future

- It is required to complete IT system in Vietnam Securities Depository and the 2 Securities Exchange to meet market demand, avoid “throat” for payment, depository, securities transactions in market The 2 trading centers with almost similar operation model exist together increasing operation cost for market

* Taxation and fee policy in securities field

- Investors buying stock means contributing capital into enterprises, profitable enterprises must pay corporate income tax; however investors still have to pay tax when they are allocated dividend

- When investors sell at loss, they still have to pay income tax, as it is very difficult to calculate difference between sales and purchase as well as prolix procedure

in implementing this tax payment method

- Fees paid to Securities Exchange, Depository are also significant costs in the context of difficult market and poor liquidity

2.4.5 Some other causes

- Happening of interest and inflation: Situation of high inflation in the economy

over the past time caused instability in macro economy, capital not turned over through financial market and ineffective operation of market

- Role of Association: Role of associations representing 3 subjects in securities

market namely Listed enterprises’ association (buyers), financial investors’ association

(buyer), Securities trading association (intermediates) has not showed clearly

CHAPTER 3 SOLUTION TO CAPITAL MOBILIZATION OF ENTERPRISES

IN SECURITIES MARKET OF VIETNAM

3.1 CAPITAL MOBILIZATION ORIENTATION OF ENTERPRISES IN

VIETNAM SECURITIES MARKET

3.1.1 Goals of Vietnam capital market development by 2020

Develop Vietnam capital market fast, synchronously, firmly, in which securities

market plays a key role; step by step leading capital market to become a n important

component of financial market, significantly contributing to mobilize capital to

development investment and reform economy Strive to reach 70% GDP by 2020

3.1.2 Point of view and principles of developing capital market

Form and develop structures of capital market synchronously, in which securities

market plays a important role, ensure effective mobilization and allocation of

investment capital for growth of Listed enterprises’ Association; Organize effective,

safe and healthy operation of capital market; ensure national securities

3.1.3 Capital mobilization orientation of enterprises in Vietnam securities market

- In one hand, create clear condition for enterprises to mobilize capital in

securities market; on the other hand, it needs to have mechanism to select really

effective issuing options

- Raise role of intermediate financial organizations, securities companies in

market

- Create favorable conditions for listed enterprises, registration for concentrated

transaction to narrow free market in order to minimize market risks

- Create environment for securities to be really equal, public, and efficient and

protect rights of investors, enhance belief into market

ENTERPRISES IN VIETNAM SECURITIES MARKET

3.2.1 Solutions on part of enterprises

* Improve efficiency of business and production:

- Determine reasonable, close capital structure appropriate to Enterprise scale, avoid excessive misusing of loan, especially short term loan ; Pay attention to setting

up and developing the team for enterprises and raise operation efficiency of management apparatus of enterprise: Build good relationship between managers and employees, always respect and encourage self control and creation; Establish system of exchange and treating information in enterprises; Apply advanced science and technology into production and business;

- Environment administration: Aspects of business environment affects on business efficiency of Enterprises such as: policies, mechanism of State, world economic situation, international exchange, political system; bilateral relationship between countries; multilateral agreements controlling relationship between countries; international organizations, etc

* Study, seek for investment projects, plans on expanding production and business effectively: In order to build plans, investment projects of expanding business and production, it is required enterprises to have a vision, mind and talent, dedicated to

enterprises so as to work out appropriate decisions on developing enterprises

* Raise role of Board of supervisors of enterprises, encourage supervision of

shareholders on enterprises:

- Board of supervisors must independently operate in order to check the

appropriateness, legality and diligence in management, operation of business activities,

in accounting, statistical work organization and preparing financial statements

- Comply with legal regulations, not cause interruption, difficulty to management, operation of enterprises

- Joint stock company must encourage shareholders to exchange about business and production situation of enterprises, any inquiries must be explained clearly, satisfactory shareholders and enterprises

- To enhance role of shareholders in supervision of activities of Company, it is required to bring role of Board of supervisors of Company into full play as link between shareholders and enterprise

* Ensure harmony in benefit of shareholders and employees in company: Enterprises

need to understand in order to comply with general standards of market, avoid in-favorable information about profit allocation which causes difficulty in mobilizing capital

* Strictly obey all regulations on announcing information according to regulation of

State Securities Commission of Vietnam and Securities Exchanges, actively supply

information to investors

3.2.2 Development of investors system

*Individual investors:

- Organize training programs free of charge on securities and securities market;

- Disseminate about benefit of investing in securities: communication work on

securities market needs to be enhanced through public television programs, encourage

investors to save a certain percentage of their total assets for investing to securities

market

- Avoid adverse information, not true to nature of market attached to supply of

transparent exact, sufficient and information to investors

- Give tax, fee preferential to securities investors: in order to encourage investor to

take part in market, it is required to implement preferential policies on these subjects

* Organizational investors: In order to promote organizational investors to take

part in market, it is required to complete legal framework, allow open funds to go into

operation, re-consider tax polices imposed on organizations, etc

* Foreign investors: continue to implement equitization route and lead major

enterprise s in the banking, petroleum, telecommunication fields to list their stocks on

securities market creating investment opportunities for foreign investors

3.2.3 Solutions on part of intermediate financial organizations

* Actively access enterprises to set up feasible issuance projects

- Securities companies need to study and access to enterprises listed in securities

market in order to understand about demand for capital

- Active in access the listed enterprises to support them to set up plans on

mobilizing capital through securities

- Classify, assess the listed enterprises in 02 securities exchanges to seek for

sectors, fields, enterprises having development prospects able to build feasible plans;

* Raise quality of issuance consultancy

- Raise quality of issuance consultancy showed in supporting enterprises to

build transparent, persuading clear information announcement,

- In order to raise quality of issuance consulting service, securities company need to

build their own issuance consulting service process from approach to customers till completion of issuing period, implementing price stabilization after issuance

* Push up deployment of issuance guarantee operation

- Implementing issuance guarantee operation of securities companies is the most clear and persuading commitment and confirmation to investors

- Enhance financial capacity for issuance guarantors: increase retained profit percentage; merge, combination of securities companies

- Build appropriate, safe issuing guarantee process suitable to real conditions, compliant with legal regulation

- On other hand, securities companies need to enhance mutual cooperation to

realize joint issuing guarantee plans

* Select mode and instruments of issuing: Pay attention to modes and instruments

of issuing Issuance consulting companies must analyze pros and cons of each mode, instrument of issuing, whereby recommend, consult the best optimal plan for enterprise

* Determine appropriate price for the issuing period: Issuing price must ensure to

be accepted by market, ensure harmony in benefit between existing shareholders and new shareholders Giving reasonable price suitable to issuing mode is a decisive factor

to success of issuing period, determining whether the option of mobilizing capital through securities to be successful or not

* Support enterprises in disseminating information about the issuing period to market: Arrange roadshow programs, prepare materials, content to show in the introduction session; make list of invitees to the introduction session; write some writings to propagandize about enterprise and the issuing period in mass media; together with enterprise to meet, contact some big investors, organizational investors

* Expand relations, build domestic and international customer network: Set up

relations with organizational and individual investors; expand relations with foreign investors through conference, seminars introducing investment opportunities

3.2.4 Solutions on part of State management agencies

* For issuing organization

-Regulation that issuing stocks must have issuing guarantee organization: This regulation is necessary to raise goods quality for market, avoid situation of situation that issuing is without production and businesses plan to effective use of mobilized capital, losing credit of investors