HSBC and Techcombank officially "fall out of a 12-year love"

Recently Techcombank has bought over 172.35 million treasury stocks (equivalent to 19.41 per cent of Techcombank’s stakes in circulation). The number of treasury stocks is equal to the number of stakes held by HSBC, of which Techcombank asked shareholders for approval of acquisition in late June.

If the average transaction price was VND23,445 (equivalent to US$1.01) per stock as the buying price offered by Techcombank, Techcombank must have spent an estimated amount of VND4,040 billion (roughly US$178 million) for this acquisition.

In December 2005, HSBC acquired 10 per cent of Techcombank’s stakes. In 2007 and 2008, HSBC continued to increase its stakes ownership in Techcombank to 15 and 19.41 per cent, respectively.

Initially, HSBC sent many of its senior managers to support techcombank. These managers were also involved in Techcombank's day-to-day operations.

However, HSBC has gradually become less influential since 2012 and announced capital divestment at Techcombank even though Techcombank is profitable. There are many reasons for HSBC's decision to divest capital at Techcombank; however, according to analysis by Ho Chi Minh City Securities Corporation (HSC), the main reason is that HSBC hardly controlled its capital resource in Techcombank.

Although HSBC has appointed many senior staffs the key positions of Techcombank after raising its stakes in Techcombank to nearly 20 per cent, its control of capital resource was almost impossible.

However, the decisive reasons are that Techcombank decided not to pay dividends in 2016 for shareholders and planned to increase its charter capital.

According to HSBC’s press release, the acquisition price of Techcombank’s stocks in 2005 was VND 60,891 (equivalent to US$2.68) per stock. After that, Techcombank's stock price dropped to about VND26,000 (roughly US$1.15) per stock, and the shareholders sometimes received profits with shared some bonus stocks and dividend stocks (from 2008-2010). Since 2012, Techcombank has decided not to pay dividend stocks, bonus stocks as well as cash dividends to increase scale of equity. In 2016, Techcombank earned the net profit of nearly VND3,150 billion (roughly US$138.8 million) without paying dividends to but shareholders. Thus, HSCB’s huge investment in Techcombank was almost unprofitable.

In addition, Techcombank planned to increase its charter capital from VND8,878 (roughly US$391.2 million) to 14,000 billion (approximately US$617 million) in 2017 through buying stocks to the current shareholders based on their ownership ratio of stocks. This means that if HSBC want to remain its ownership ratio of nearly 20 per cent at Techcombank, it will have to spend a huge amount, which bothers HSBC.

According to HSC’s judgment, HSBC expect to buy 19.41 per cent of Techcombank’s stakes at higher price than the initial buying price. Accordingly, the total divestment amount must be minimum VND5,170 billion (equivalent to US$227.8 million) subject to the current market price. Therefore, HSBC earns a profit of over US$700 billion (roughly US$30.8 million) equaling 15.6 per cent for a 12-year investment. Specially, in case of risk identification and the difference in exchange rates from the time when HSBC invested in Techcombank and presence (in US$ and divestment capital in VND), HSBC’s investment causes a huge loss.