How are listed companies’ financial investments performing?

Of the 107 companies listing at the HCM City Securities Trading Centre, only five do not make financial investments, namely CYC, MCP, SAF, VGP and VPK. The other 102 companies have financial investment deals totalling several trillion VND.

Buying shares or bonds proves to be a suitable way to make temporarily idle capital produce profit, and companies always make short-term investments this way.

As for REE Corp, the Refrigeration Electrical Engineering Corporation, for example, financial investment has become a key business. As of March 31, 2007, the corporation had financial investment deals worth VND1,312bil ($82mil) comprising the investment of VND503bil ($31.43mil) in securities and VND814bil ($50.87mil) in deposits.

In 2006, the financial investments of REE brought about the profit of VND150bil ($9.37mil), and the figure was VND125bil ($7.81mil) in the first quarter of 2007.

Normally, there are three ways for a company to begin its financial investment: 1. build a division in charge of financial investment 2. cooperate with another company 3. set up a subsidiary.

The first and the second ways prove to be suitable for small companies, which do not have much capital and do not have financial experts. The third way is only for big corporations and groups.

Currently, many companies are trying to raise funds from existing shareholders and the public in order to raise their chartered capital. A part of the raised capital would be injected in production, while the remaining would be reserved for financial investments. Some companies even borrow money from banks to inject in financial investment deals though they lack capital for production activities.

Companies’ investments in each other often create links which can have impacts on share prices. For example, REE Corp now holds shares of Sacombank, and vice versa, the bank holds shares of REE (REE has 11mil Sacombank shares). Therefore, if Sacombank’s share price increased from VND60,000/share to VND100,000 and VND160,000/share, it would lead to the increase of REE shares.

In some cases, enterprises are too busy with their financial investments, ignoring their main business and production, leading to bad business performances and danger. And concerns have been raised that the danger of a company may have bad impacts on other companies that invest in this company, and become a danger for the whole system.

Analysts have said that making financial investments has become a tendency that many companies are following. In the near future, with the national economy performing well with the growth rate of more than 8% per annum, and when commodities are profuse (a lot of IPOs are to be conducted in some days), it is expected that more and more companies will be lured by financial investment deals.

Source: VNE