A Phu Nhuận Jewellery store in District 1, HCM City. The company is among the six stocks being traded on the covered warrant market. (Photo: pnj.com.vn) Hanoi (VNS/VNA) - Securities companies participating in the newcovered warrant market may find it less attractive to trade covered warrants oflarge-cap State-owned companies due to their low free-floating ratios.
Covered warrants are a new investment tool that allows holders to buy or sell aspecific amount of equities, currency or other financial instruments, usuallyto or from a bank or similar financial institution, at a specified price andtime. The underlying assets could also be stocks, commodities or indices. Theyoffer lower investment costs and higher leverage ability than conventionalfinancial products, and are expected to help investors limit losses and makehigher profits.
A firm's free float ratio is the percentage of outstanding shares that areavailable for trading on the stock market. The higher a company's free-floatratio is, the more attractive the shares are to investors and the lessvulnerable they are to price manipulation, tinnhanhchungkhoan.vn reported.
In addition, securities companies are accountable for hedging risks whenissuing covered warrants for the selected companies’ stocks. Therefore, anystock with a high free-float ratio and large number of shareholders will have amore attractive and safer covered warrant.
Large-cap State-owned companies are becoming less attractive to investorsbecause of their low free float ratios.
Having a large portion of shares owned by the State makes companies vulnerableto big deals, so they have a large impact on the stock market. Minorityshareholders are rarely able to influence the way a company is run, limitingthe quality of corporate governance and efficiency and making their shares lesssuitable to be traded on the covered warrant market.
The new covered warrant market was launched on June 28. Sixteen coveredwarrants of six listed stocks, including dairy producer Vinamilk (VNM), PhuNuan Jewellery JSC (PNJ), steel producer Hoa Phat (HPG), Military Bank (MBB),retailer Mobile World (MWG) and tech group FPT (FPT), are being traded on thenew market.
Those private equity firms may not have the biggest volumes of listed shares orthe biggest market values but they have very high ratios of free-float shares,which makes it easier for investors to trade their shares and covered warrants.FPT has a free float ratio of 78.97 percent. The numbers for PNJ, WMG and MBBare 78.14 percent, 62.81 percent and 57.17 percent, respectively.
At the moment, 26 of the 30 largest stocks by market capitalisation and tradingliquidity in the VN30 basket are eligible for covered warrant trading.
Those 20 other firms meet the guidelines but have not yet had their coveredwarrants issued by securities firms. If the first covered warrants aresuccessful, the other 20 will likely be issued soon.
To be traded on the covered warrant market, a stock must be a large-cap in theVN30 basket, have a high daily average trading volume and a minimum free floatratio of 20 percent.
The four other blue chips – Vietcombank (VCB), Vietinbank (CTG), brewer Sabeco(SAB) and PetroVietnam Gas (GAS) – are not yet available because theirfree-float ratios are below 10 percent.
The State, through the Vietnam National Oil and Gas Group (PVN or PetroVietnam)is the major shareholder in PV Gas, holding a 95.76 percent stake. Majorshareholders in Vietcombank, Vietinbank and Sabeco own at least 90 percent ofeach company.
But after the VN30 basket review by the Ho Chi Minh Stock Exchange takes effecton August 8, the number of large-cap firms’ stocks available for coveredwarrant trading will be reduced to 24.
The bourse last week announced that Bank for Investment and Development ofVietnam (BID) and insurance group Bao Viet (BVH) will be added to the VN30basket to replace DHG Pharmaceutical JSC (DHG) and HCM City InfrastructureInvestment JSC (CII).
But BID and BVH will not be eligible for covered warrant trading for the samereason as Vietcombank, Vietinbank, Sabeco and PV Gas.
The State Bank of Vietnam is the biggest shareholder in BIDV, holding a 95.28 percentstake, while the Ministry of Finance and the Japanese group Sumitomo Life hold89.5 percent of Bao Viet. – VNS/VNA
VNA
