NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** BARCHELOR’S THESIS IN FINANCE EXPAND CAPITAL FUNDING BY ISSUING BONDS IN TASCO JOINT-STOCK COMPANY ACKNOWLEDGEMENTS From 11th March to 02nd June, I had an opportunity to have an internship in TASCO Joint-stock Company The new environment in a professional workplace was a great chance for me to prepare for my near future; however, it was also a challenge for an undergraduate student Despite some difficulties I was really lucky to receive the helps from many people and I really appreciate their kindness I wish to thank my parents for their tremendous support and advice which are really helpful since I did not have any experience in a real work I would like to express my greatest gratitude to my supervisor Mr Dang Ngoc Duc because without his help and guidance this report cannot be completed There are not many supervisors who give advices and spend time talking with their students with care just like his family members, and I sincerely appreciate his understandings and empathy toward our problems I also want to give a special thank to my internship guide, Mr Tran Huy Hoang, Manager of Financial Department and all the department’s staffs in TASCO JSC I have been inspired by their enthusiasm and professional working style Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B TABLE OF CONTENTS ABBREVIATION CDs HNX LIBOR MOF ROE TASCO JSC Supervisor: PhD Đặng Ngọc Đức Certificate of deposits Hanoi Exchange London Interbank Offered Rate Ministry of Finance Return on equity TASCO Joint-stock Company Cao Thị Hồng Hạnh – Class AF51B LIST OF TABLES LIST OF FIGURES CHAPTER 1: INTRODUCTION 1.1 Rationale Vietnamese economy, in general, has been dominated by the banking system for a long time In the last few years, the difficulty in accessing capital markets through banking channels has made many companies suffer the situation of lacking working capital In this situation, some companies have found their method to raising funds by issuing bonds and gained some considerable achievements Corporate bond market has been born along with the introduction of stock market in Vietnam firstly in July 2000 However, until the first half of 2012, the corporate bonds Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B accounted for only 8% of the total bonds value in Vietnam Despite various weaknesses in the Vietnamese bond market, corporate bonds have much potential to grow and become a main method for raising company’s capital Understanding the advantages and disadvantages of issuing different types of bonds will help people find the attractiveness of the corporate bonds and also the challenges of issuing them In order to make a clearer illustration and give some suggestion to improve the issuance of corporate bonds, particularly construction and real estate companies, the topic “Improve the efficiency of raising capital through the issuance of bonds in TASCO Joint-stock Company” was chosen to be analyzed in this report 1.2 Objective There are several objectives of the report, specifically - Give some overview about Joint stock companies and their method of raising - capital especially the method of issuing bonds Give more information and understandings about corporate bonds and their advantages as well as disadvantages compared to other method of raising - capital Introduce TASCO JSC and their issuance of bonds Analyze and evaluate the bonds issuances at TASCO JSC Finally, from the analysis some suggestions will be proposed in order to improve the company’s issuance of bonds in the future 1.3 Methodology Firstly, the data from the company official website and other information collected while attending internship program is gathered and then selected to make a range of the most suitable and valuable information relating to the research topic The numbers and figured collected then will be used to give illustrations when necessary Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B In Chapter II, several opinions and secondary data that were selected from different sources will be review to make a theoretical framework for the research Finally, based on the concept and theory in Chapter II, the case of TASCO JSC will be analyzed 1.4 Scope While introducing the Vietnamese bonds market, only the corporate bonds will be focused The government bonds will not be deeply mentioned since they are not the main topic Another limitation is that the suggestion will be made especially for the case of Construction and Real Estate Company so there would be limitations when applying for other companies in different industries In Chapter 2, the theoretical framework of the research will be reviewed The basic concepts of a company’s capital structure, especially which of Joint-stock company, will be given Then the definitions as well as the disadvantages and advantages of several methods to raising capital in companies will be introduced Particularly, the concepts of raising capital through issuing bonds will be focused further in the third part of the chapter In Chapter 3, there is an overview about Tasco JSC as well as its performance in the industry The bond issuances of Tasco from 2010 to present are also introduced in this chapter Chapter gives the detail analysis and evaluations to the issues of bonds in Tasco JSC They will be evaluate based on some given indicators; and from the analysis, some proposals will be suggested to the company Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B CHAPTER 2: OVERVIEW OF JOINT-STOCK COMPANY’S CAPITAL MOBILIZATION AND BOND ISSUANCE 2.1 The concept of joint stock companies and joint-stock company's capital structure 2.1.1 The concept of Joint-stock company According to Article 77 in Vietnamese law on Enterprises 2005, a Joint-stock company is defined as follow: A joint-stock company is an enterprise where: 1) Its charter capital is divided into equal portions known as shares; 2) Shareholders may be organizations and/or individuals; the minimum number of shareholders shall be three and shall not be restricted to any particular maximum number; 3) Its shareholders shall be liable for debts and other property liabilities of such enterprise within the limit of the value of their capital contribution to the enterprise; Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 4) Shareholders shall be entitled to freely transfer their shares, except the case specified in Clause of Article 81 or Clause of Article 84 of this Law Briefly, a joint-stock company is “An organization that falls between the definitions of a partnership and corporation This type of company issues stock and allows for secondary market trading; however, stockholders are liable for company debts.” Joint-stock companies have several characteristics: The charter capital of a joint stock company is divided into equal portions called shares The equity owners are called shareholders Each shareholder can buy one or more shares A joint-stock company may issue multiple classes of shares, including common shares In addition, the Company may issue preference shares, including voting preference shares, dividend preference shares, redeemable shares and others according to the company’s charter The shares of a joint-stock company are easily transferable from one person to another except the voting preference shares and the shares of founded shareholders This characteristic allows investors changing their investment objectives and methods in a flexible manner The liability of the members of a company is restricted to the extent of the unpaid value of the shares held by him The personal asset of a shareholder cannot be used to pay the company's liabilities (unlike the unlimited liability of the partners in a partnership or business owners in private businesses) The company may issue securities to the public for funding This feature shows the strong ability to raise capital from the public Since huge amounts are collected as capital, the operation of the business will generally be on a large scale basis The company has to have at least three shareholders and there is no limit for the number of shareholder (Unlike the limited liability company with two members or http://www.investopedia.com/terms/j/jointstockcompany.asp Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B more, the number of member should not exceed 50) In the operating process, shareholders are free to transfer their shares (except otherwise provided by law) Thus, the number of shareholder of joint stock companies is usually very large 2.1.2 Joint-stock company’s capital structure The capital structure of a joint-stock company is a combination of its long-term debt, specific short-term debt, common equity and preferred equity In other words, the capital structure is how a firm use different source of funds to finance its overall operations and growth Bonds, loans and commercial paper are examples of debt, while equity is classified as common stock, preferred stock or retained earnings Short-term debt such as working capital requirements is also considered to be part of the capital structure 2.2 Raising capital in Joint-stock companies Companies have various ways to raise their capital; here are some methods that are commonly used and their advantages as well as disadvantages for the companies using them 2.2.1 Issuing bonds Corporate bonds are the means by which private firms borrow money directly from the public; they typically pay semi-annual coupons and return the face value of the bond at maturity When corporation issues bonds, they create one master loan agreement and offer investors a chance to participate in the loan The company offers the identical deal to all investors regardless of whether the individuals interested in buying just one bond each or corporations buying 1000 bonds The master loan agreement between the corporation and the investors is called a bond indenture The indenture contains information that you would expect in any loan agreement such as: Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 10 - The amount of money the company is borrowing The interest rate the company will pay The collateral for the loan (if any) When the company will make its interest payments Whether the company will pay off the loan, that is, when the bonds will mature Whether the company and/or the investors will have the choice of shortening the bond's original maturity There are some characteristics that associated with bonds: Face value/ Par value The face value (also known as the par value or principal) is the amount of money a holder will get back once a bond matures A newly issued bond usually sells at the par value However, the par value is not the price of the bond A bond's price fluctuates throughout its life in response to a number of variables When a bond trades at a price above the face value, it is said to be selling at a premium When a bond sells below face value, it is said to be selling at a discount Coupon (The interest rate) Coupon is the amount the bondholder will receive as interest payments Sometimes there are physical coupons on the bond that can be torn off and redeemed for interest However, records are more likely to be kept electronically Most bonds pay interest every six months, but it's possible for them to pay monthly, quarterly or annually The coupon is expressed as a percentage of the par value For instance, if a bond pays a coupon of 10% and its par value is $1,000, then it'll pay $100 of interest a year A rate that stays as a fixed percentage of the par value like this is a fixed-rate bond Another possibility is an adjustable interest payment, known as a Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 43 condition is unfavorable they can accept cash for principal and interests When real estate price increases, it is clear that the right to buy an apartment is profitable However, not many real estate companies can issue this kind of bond because they have to fulfill several conditions such as having good reputation and owning reliable real estate projects Fortunately, Tasco is in very favorable conditions so they have little problem issuing mortgage bonds Moreover, one of the most important problems is that although issuing mortgage bonds is not goes against the Corporate Law and Investment Law, there is no specific provision about it The poor legal framework might lead to some confusion in the process of issuing bonds and implementing bondholders’ benefits Nonetheless, as a company operating in real estate business, Tasco should seriously consider issuing mortgage bonds 4.4.2 Issue long-term bonds It usually takes a long time to complete a construction or real estate project These projects will take considerable time to recover capital, not to mention the interest income Funds raised have to be used for a long time to be profitable Moreover, one of the biggest risk of the bond is the payment risk; the shorter the maturity, the greater the risk Tasco has only issued bonds with a term of one year; this term is relatively short considered the company is a construction and real estate company Moreover, the debt ratio of the company is already high then the risk will be greater Currently, the company is able to pay the full principal and interest to bondholders because the number of bonds issued was not large and they have other income from many other projects However, in the future, when they rely more on the bonds to finance their projects and the volume of the issue is larger, they should issue bonds with longer maturity If they issue bonds in different and longer maturities, the investors will have more choices when they purchase the bonds and that contributes to the attractiveness of the Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 44 bonds The company will have longer time to employ the capital raised from bonds and be able to pay for the principal as well as interests by the income generated from that fund instead of using income from other sources However, the longer of the term also means the more difficult for the management Managing the effectiveness of using capital is not an easy task especially with large projects A mistake in managing costs can lead to losses or unsatisfied income that cannot cover the cost of capital Therefore, Tasco need a good management in using capital and limiting costs 4.4.3 Using public offering Tasco has only used private placement to offer their bonds to the investors Thus, the number of investor are very limited (less than 100 investors) and there is no secondary market for their bonds Moreover, the interests they need to pay for the investors are very high because there is no competition between the investors to buy their bonds and that consequently increased the costs In order to widen Tasco’s bonds market and reduce the cost, the method of public offering is suggested As described in chapter 2, in a public offering, the issuer publicizes the upcoming bond issue, provides the timeframe and platform for which bids will be accepted, and provides any additional guidelines or details related to the bond issue Generally, the winning bidder(s) is the one who has offered the lowest total interest costs, including all costs of issuance and underwriter fees Therefore, the company can sell their bonds with better prices In the current bond market conditions, private placement might still be a better choice when a company wants to issue their bonds because Vietnamese bond market is not yet developed But in the near future, when the activities of underwriters and credit rating agency are more developed, Tasco should consider issuing their bonds in a public offering in order to approach more investors Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 45 CONCLUSION Although there are many difficulties in the bond markets in Vietnam especially the corporate bond market, the use of bonds will definitely continue developing and take an important role toward enterprises The concept of issuing bonds is not new anymore regarding its introduction from 1994; however, Vietnamese companies seem like they are still not involved and improve much in issuing their bonds That makes Vietnamese companies miss out many advantages which they can take from bonds and Vietnamese Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 46 bond market is just like an infant when compared to many countries where bond markets are well-developed Tasco has done relatively good in their bonds, but they can much better if they take into consideration all of their advantages, strengths as well as avoid the difficulties and threats from their own business and economics environment The three suggestions in Chapter are only few of many solutions that they should study and consider doing in the short and long terms Hopefully, the three suggestions that have mentioned reflect well the shortcomings and help to improve the bond issues in Tasco JSC REFERENCES Giang, L H (2013, April 14) Nhìn lại phát triển thị trường trái phiếu Việt Nam 10 năm qua Retrieved May 19, 2013, from VinaCorp: http://www.vinacorp.vn/news/nhin-lai-su-phat-trien-cua-thi-truong-trai-phieuviet-nam-10-nam-qua/ct-543814 Giới thiệu (n.d.) Retrieved 2013, from TARIC Web site: http://tasco.com.vn/Home/TaricView/1?lang=1 Issuance Volume of LCY Bond Market in USD (n.d.) Retrieved May 24, 2013, from Asian Bonds online: Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 47 http://asianbondsonline.adb.org/vietnam/data/bondmarket.php? code=Issuance_Volume_LCY Size of LCY Bond Market in % of GDP (n.d.) Retrieved May 24, 2013, from Asian Bonds online: http://asianbondsonline.adb.org/vietnam/data/bondmarket.php? code=LCY_in_GDP_Local Size of LCY Bond Market in USD (n.d.) Retrieved May 24, 2013, from Asian Bonds online: http://asianbondsonline.adb.org/vietnam/data/bondmarket.php? code=LCY_in_USD_Local Suong, B (2011, May 26) Retrieved Jan 4, 2013, from Vietstock: http://vietstock.vn/PrintView.aspx?ArticleID=190348 The ratings table (n.d.) Retrieved May 13, 2013, from Multiple-markets: http://multiple-markets.com/3ratingschart.htm Zvi Bodie, Alex Kane, Alan J Marcus Esentials of Investments McGraw-Hill International Edition Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 48 APPENDIX A Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 49 Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 50 APPENDIX B BẢNG CÂN ĐỐI KẾ TOÁN Tại ngày 31 tháng 12 năm 2011 Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 51 BẢNG CÂN ĐỐI KẾ TOÁN (Tiếp theo) Tại ngày 31 tháng 12 năm 2011 CÁC CHỈ TIÊU NGOÀI BẢNG CÂN ĐỐI KẾ TOÁN Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 52 APPENDIX C Bảng Quá trình tăng vốn điều lệ Đơn vị: Triệu đồng Giá trị Thời gian Vốn điều lệ Phương thức tăng vốn điều lệ tăng thêm Khi cổ phần hoá 7.000 Lần 1: Tháng 10.000 3.000 04/2003 Chia cổ phiếu thưởng từ quỹ đầu tư phát triển cho cổ đông hữu (Theo NQ ĐHĐCĐ ngày 11/04/2003) Lần 2: Tháng 16.000 6.000  04/2003 Phát hành thêm cho cổ đông hữu cán công nhân viên  (Theo NQ Chia cổ phiếu thưởng từ quỹ đầu tư phát triển cho cổ đông hữu ĐHĐCĐ thường niên lần ngày 11/04/2003 NQ ĐHCĐ bất thường ngày 02/11/2003) Lần 3: Tháng 55.000 08/2007 (Theo NQ Supervisor: PhD Đặng Ngọc Đức 39.000  Phát hành cho cổ đông hữu  Chia cổ phiếu thưởng cho cổ đông hữu; số lượng 263.458 cổ phần, Cao Thị Hồng Hạnh – Class AF51B 53 Giá trị Thời gian Vốn điều lệ Phương thức tăng vốn điều lệ tăng thêm ĐHĐCĐ ngày mệnh giá 10.000 đồng/cổ phần 02/06/2007)  Phát hành quyền mua cho cổ đông hữu với tỷ lệ 1:1; số lượng 1.586.564 cổ phần, mệnh giá 10.000 đồng/cổ phần  Phát hành cho người ứng vốn cho dự án xử lý rác thải TP HCM: 350.000 cổ phần, mệnh giá 10.000 đồng/cổ phần  Phát hành cho đối tác chiến lược: 700.000 cổ phần, mệnh giá 10.000 đồng/cổ phần  Phát hành cho cán chủ chốt công ty công ty con: 999.978 cổ Lần 4: Tháng 12/2009  135.000 80.000 đông hữu, giá phát hành 10.000 đồng/cổ phần theo tỷ lệ 1:1 (Theo NQ ĐHĐCĐBT số  đồng/cổ phần, thời gian hạn chế chuyển DDHCĐ ngày nhượng 06 tháng 18/7/2009) Supervisor: PhD Đặng Ngọc Đức Phát hành 2.225.000 cổ phần cho cổ đông chiến lược, giá phát hành 13.500 02/2009/NQ- Giấy Chứng nhận phần, mệnh giá 10.000 đồng/cổ phần Phát hành 5.500.000 cổ phần cho cổ  Phát hành 275.000 cổ phần cho CBCNV công ty công ty con, giá phát Cao Thị Hồng Hạnh – Class AF51B 54 Giá trị Thời gian Vốn điều lệ Phương thức tăng vốn điều lệ tăng thêm Chào bán số hành 12.000 đồng/cổ phần, thời gian hạn chế chuyển nhượng 01 năm 436/UBCK-GCN UBCNKNN) Lần 5: Tháng 349.976 215.000  3/2010 đông hữu với mức giá 10.000 đồng/CP theo tỉ lệ 1:1 (Theo NQ ĐHĐCĐ số  đồng/CP ĐHCĐ ngày  phát hành 12.000 đồng/CP số 577/UBCK03/6/2010 UBCKNN) Supervisor: PhD Đặng Ngọc Đức Phát hành 675.000 cổ phần cho cán nhân viên văn phòng công ty với giá Giấy chứng nhận GCN ngày Phát hành 3.225.000 cổ phần cho cổ đông chiến lược với mức giá 14.000 01/2010/NQ31/12/2010 Phát hành 13.500.000 cổ phần cho cổ  Đấu giá bên ngoài: Phát hành 4.097.600 cổ phần với giá khởi điểm đấu giá trúng thầu bình quân 22.307 đồng/cổ phiếu Cao Thị Hồng Hạnh – Class AF51B 55 COMMENTS …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………… Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 56 INTERSHIP REPORT ASSESSMENT …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… …………………………………………………………………………………………………… Signature of supervisor Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B 57 Supervisor: PhD Đặng Ngọc Đức Cao Thị Hồng Hạnh – Class AF51B ... of joint stock companies and joint- stock company' s capital structure 2.1.1 The concept of Joint- stock company According to Article 77 in Vietnamese law on Enterprises 2005, a Joint- stock company. .. obstacle to funding 2.2.5 Using retained earnings Retained earnings are the portion of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or... common stock, preferred stock or retained earnings Short-term debt such as working capital requirements is also considered to be part of the capital structure 2.2 Raising capital in Joint- stock