Kim Long exit plan serves notice to stock market: experts

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A plan by Kim Long Securities to exit the brokerage business is sending a message to other firms: Don't stick to the market if your securities services are making losses.

Established in 2006 with a registered capital of VND18 billion (US$863,000), the Hanoi-based company soon became popular among stock market players. Its capital was raised to VND2.03 trillion ($97 million) early last year.

However, with the market continuing to decline over the past year and the competition among securities companies getting fierce, the firm wants to call it quits.

The company will hold a shareholders' meeting on March 19, seeking approval to stop providing securities services and switch its business to property, computer trading, and some other areas.

If the plan is ratified, the company will change its name to Kim Long Corporation but still maintain its listing on the Hanoi Stock Exchange.

Chairman Ha Hoai Nam told local news website VnExpress earlier this month that when Kim Long is no longer a securities company, it will be allowed to invest in other firms without disclosing its portfolios.

He also said his company will not be subject to any restrictions on investments when its shifts to new business lines.

Under current regulations, a securities firm is only permitted to buy up to 15 percent of a company's shares. There are no restrictions placed on other types of companies.

Nam said, however, the main reason that he wants to stop brokering services is that they are ineffective.

"According to my calculations, to generate brokering revenues of VND100 billion ($4.8 million) [per year], the company has to spend thousands of billions of dong (investing in infrastructure, paying brokers and analysts, and other expenditures). It is too risky."

Nam blamed the situation on fierce competition among brokerages.

A common level of brokering rates is about 0.2 percent of trading value which has shown a downtrend due to the competition amongst securities firms. Meanwhile, operating expenses tended to rise, Nam said.

Cognitive change

"Kim Long's exit plan has caused a stir and made a cognitive change in the stock market," said the head of brokerage at a Ho Chi Minh City-based securities firm, who wished to remain unnamed.

"This has startled loss-laden brokerages. For years, many firms have tried to engage in securities activities though they have been ineffective or even caused losses. But Kim Long's move will make these firms review their operation," he said.

Twenty of 105 brokerages in the country posted losses last year. Kim Long lost nearly VND180 billion ($8.6 million).

The poor performance has been attributed to the market decline. Vietnam's stock market was Asia's third-worst performer in 2010 as the Ho Chi Minh Stock Exchange's VN-Index sank 2 percent while the MSCI Asia Pacific Index climbed 14 percent.

The index rebounded at the beginning of this year as expected. However, it plunged again on inflation concerns. The gauge has lost 5.5 percent so far this year.

Though Kim Long is sending a clear notice to the stock market, not many companies have enough financial capability to restructure their businesses in a similar fashion.

Hoang Thach Lan, a HCMC-based analyst who heads the brokerage unit at Mekong Housing Bank's MHB Securities Co., noted that Kim Long has a large amount of surplus cash, which makes it easy for the company to transform its business from brokerage to other sectors. The Hanoi-based firm has VND1.8 trillion ($86 million) deposited in banks.

"Meanwhile, most other brokerages have used their money to invest in facilities or buy shares for themselves," he said.

Lan did not expect other companies to follow Kim Long's plan in the near future.

M&A activity

Some other experts said mergers and acquisitions among securities firms are likely to increase this year as they struggle to retain their operations in a bearish market.

Nguyen Hoang Hai, general secretary of the Vietnam Association of Financial Investors, said that the country's stock market is experiencing a redundancy crisis as it has too many brokerages, leading to harsh competition.

"[Therefore], many securities firms will have to consider plans to merge, acquire, restructure, or even shut down their businesses."

He also said the number of securities firms is likely to fall to 40-50 from the current 105.

"However, it will take time and will not be a rushed process," he said.

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