The capital demands of small- and medium-sized enterprises (SMEs) in Vietnam can be quite high, but obtaining loans from banks has always been problematic. In the search for the funding they need to grow, listing on the stock market has become an alternative.
According to Mr Nguyen Ngoc Tuan, General Secretary of the Hanoi Small and Medium Enterprises Association (HASEMS), government regulations define SMEs as those with registered capital of less than VND10 billion or staff numbers under 300.
“SMEs in Vietnam account for 95-97 per cent of the total and their capital demand is very high,” Tuan said. “Borrowing money from banks is very complicated and difficult, with many strict conditions regarding collateral, capital limitations and so on.”
Equitising or listing their shares on the stock market, he added, should become common among SMEs in the future. “I think this is a good direction to head in, as SMEs can attract more capital from the stock market,” he explained. “But not all SMEs can meet the criteria for listing on the Hanoi Securities Trading Centre (HaSTC) or the Ho Chi Minh City Stock Exchange (HoSE).”
Ms Nguyen Hong Minh, Chief Accountant at the Song Da Packing Joint Stock Company, told VET that there are many benefits for enterprises in general and SMEs in particular from listing, of which capital attraction is the most obvious.
“In the context of Vietnam enjoying full membership of the WTO, enterprises are no longer supported by the state and staying afloat requires a greater effort," said Minh. She agrees that the difficulties in taking out a bank loan make listing an attractive option, and notes that mobilising capital from staff at a company is also very limited because of low salary levels.
Besides having more capital for production, transparency and professionalism within a company must also be paid greater attention. “We have a shareholders meeting every year and so must prepare annual reports and auditing activities carefully,” Ms Minh said. “Our business activities are now much better.”
Mr Phung Minh Tuan, Chief Accountant at the Sai Son Cement Joint Stock Company, which recently listed its shares on HaSTC, is of the same mind. The listing has allowed the company to access the necessary funding for a second cement plant.
“We conducted the auditing and consulting procedures in March,” he said. “The revised Law on Securities, which came into effect early this year, has made listing procedures more complicated than previously.” He believes the stock market will see more SMEs listing, and agrees that the supervision from external shareholders improves business efficiency.
Ms Minh’s company listed its shares on the HaSTC in October last year, after a decision was by company leaders about where to list. “The criteria and conditions at HaSTC appear to be easier than at HoSE,” she said. “In our case it took just three months to finalise all of the listing procedures. At that time, SMEs listing their shares on the stock market was being encouraged and we also enjoyed corporate tax reductions.”
Mr Tuan Anh, Head of the Listing Department under the HaSTC, said that Decree 14 for the Law on Securities issued guiding criteria for companies hoping to list on HaSTC, such as registered capital being upwards of VND10 billion, profits recorded in the year before listing, having at least 100 shareholders and being audited by an authorised auditor.
HaSTC now has 89 listed companies, of which more than 50 per cent have registered capital of less than VND30 billion.
Ms Anh Dao, Head of the Listing Department under HoSE, told VET that 119 enterprises are now listed on the exchange. “There is a slight difference between listing shares on HaSTC and HoSE, including the listing criteria, the trading mechanism, and liquidity,” she explained.
Mr Tuan from HASEMS believes that only 30 per cent of SMEs are likely to meet the criteria set by HaSTC. “These would be conducting business mostly in such sectors as commerce, service, information technology and construction,” he said.
Apart from the benefits of listing shares on the bourse, there are some difficulties that not all SMEs are aware of. “More capital and funds means more risk,” Tuan said. “Having funds without good business vision and planning won’t help SMEs run their business successfully. Equitisation can sometimes create danger for an enterprise.”
The development of SMEs in Vietnam is predicted to continue to boom, with more being established thanks to the country’s open business environment. “There are difficulties still ahead,” Mr Tuan warned. “The number of SMEs going bankrupt is still more than 50 per cent.”
Despite the many advantages of listing shares on the stock market, he said that state agencies should issue more relaxed mechanisms while still giving due regard to stability. “SMEs may violate the law by exaggerating their value, causing losses for investors and the stock market,” Tuan said. “We should also have strict laws to prevent any wrongdoings or misbehaviour by SMEs."
