What are the pros and cons of IPO in Vietnam?

When appears in the Vietnamese market, IPO gains a lot of attention toward its usage in the operation phase. However, IPO has its own pros and cons. So, what are the pros and cons of IPO in Vietnam? Let’s find out with LSX!

Legal grounds

• 2020 Enterprise Law
• 2019 Securities Law
• Decree 155/2020/ND-CP
• Decree 71/2017/ND-CP
• Circular 69/2020/TT-BTC

What is IPO?

Thus, IPO stands for the English phrase Initial Public Offering, which means the initial public offering of securities. The concept of securities under Vietnamese law includes many forms, but when it comes to the concept of IPO; it is automatically an initial public offering of shares. After companies successfully issue shares to the public, that company becomes a public company. That is, there are at least 100 shareholders who simultaneously own the charter capital of the company. The initial listing of shares of enterprises in Vietnam is relatively complicated and must meet many conditions and go through complicated procedures.

In order to offer shares to the public for the first time; JSC must carry out registration procedures to have their shares listed by the Stock Exchanges on the exchanges. Thus, securities trading and trading activities in Vietnam must follow the HOSE floor of the Ho Chi Minh Stock Exchange, and the HNX of the Hanoi Stock Exchange.

Conditions for IPO

General conditions

Correspondingly, to get IPO; an enterprise must fully meet the following conditions:

• Enterprises have a charter capital calculated according to the value recorded in the accounting books at the time of registration of the offering from 10 billion VND or more.
• Business activities of the year preceding the year of IPO registration must be profitable and up to the date of IPO registration must not have a loss.
• There is a plan to issue and use the capital obtained from the IPO; approved by the General Meeting of Shareholders.

Separate conditions

Besides, with some other types of enterprises, along with the above conditions; in order to IPO, enterprises need to meet other separate conditions; specifically as follows:

• For enterprises with 100% state capital converted into joint stock companies:
  • In order to IPO, it is necessary to convert from a state company into a joint stock company
• For foreign-invested enterprises converted into joint stock enterprises:
  • Having an IPO plan and using the capital obtained from the IPO approved by the owner of the enterprise with 100% foreign capital or the Board of Directors of the joint venture enterprise.
  • Having a securities company to advise on the preparation of IPO documents
• For foreign-invested enterprises that have converted into a joint stock company:
  • There must be a securities company to advise on the preparation of IPO documents.
• For new businesses in the field of infrastructure:
  • Being an enterprise acting as an investor in construction of works under socio-economic development projects of ministries, branches and provinces and cities directly under the Central Government.
  • Investment projects approved by competent authorities
  • Commitment to joint responsibility of the Board of Directors, otherwise founding shareholders for the IPO plan and the use of capital obtained from the IPO
  • There is an organization to underwrite the IPO
  • Having a bank to supervise the use of capital obtained from the IPO
    

Pros of IPO

Accordingly, the main goal of IPO is to raise capital for the business. Making an initial public offering has the following advantages:

• The company easily mobilized capital quickly from a large number of people, large scale of capital mobilization.
• IPO creates a good image and popularity of the company, which in turn facilitates subsequent issuances.
• IPOs make mergers and acquisitions (M&A) easier. It’s easy for the company to set target prices in buybacks when their stock is a publicly listed stock.
• IPO contributes to the quality and accuracy of a company’s financial statements because these reports must be prepared according to common standards set by the regulatory body. From there, the company can easily mobilize capital from banks and credit institutions
• IPOs help public companies attract and retain good employees because when offering to the public, the company always sets aside a certain percentage of the stock to sell to its employees.
• With stock options, employees of the company will become shareholders and receive dividends instead of just receiving ordinary income. This makes the company’s employees work more effectively and consider the existence and development of the company as their success or failure.
• Public companies have the opportunity to build a professional management system as well as develop a clear development strategy when implementing IPOs.

Cons of IPO

Firstly, IPO disperses ownership and can lead to loss of control of the company by founding shareholders due to corporate takeovers. Besides, the ownership structure of the company is always fluctuating due to the influence of daily stock transactions.

Secondly, the process of preparing to issue IPO shares is very expensive and time-consuming, especially for large companies, the issuance of IPO cost is often high. It also increases the time and effort required to manage and monitor financial statements.

Thirdly, mandatory disclosure of information on financial statements and tax returns can put a company at a disadvantage by disclosing too much information to competitors.

In addition, every year the company also has to bear additional expenses such as the cost of auditing financial statements, the cost of preparing documents to submit to the state management agency in charge of securities, and periodical information disclosure costs.

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