HAGL, FPT Capital lock horns in court over share repurchase dispute

Vietnamese conglomerate Hoang Anh Gia Lai (HAGL: HAG) has just revealed information on a new case it is defending against fund management company FPT Capital.

FPT Capital has sued HAGL over the latter’s refusal to buy back its own shares that had been bought by the former in 2011 under an agreement with a repurchase clause in it.

Among the signatories to the agreement between the two companies was Doan Nguyen Duc, chairman of the HAGL group.

In 2011, FPT Capital purchased 1.5 million shares of Hoang Anh Gia Lai Rubber Company, now renamed HAGL Agricultural Joint Stock Company (HoSE: HNG) for VND76.5 billion ($3.3 million) at VND51,000 ($2.2) per share.

On September 3, 2015, FPT Capital sent a notice requesting HAGL and Duc to repurchase all its HAGL Agrico shares at an aggregate value of nearly VND113 billion ($4.91 million).

In its written explanation, HAGL said that among other reasons including legality of the agreement, FPT Capital had not reasonably priced the HAGL Agrico shares to be repurchased.

"Since the two sides were not able to find a common solution, FPT Capital has filed a lawsuit," HAGL said.

In its audited financial statement for 2011, the terms of this share purchase agreement have been set out in detail by FPT Capital.

According to this, Duc and his company had legally agreed to list HAGL Agrico shares before August 15, 2015, failing which HAGL was obliged to repurchase all HAGL Agrico shares at a price equal to the FPT Capital’s total capital contribution in the initial purchase plus an internal rate of return (IRR) of 20 percent.

Furthermore, Duc had also committed to repurchasing these shares at the price paid for them by FPT Capital plus an IRR of 10 percent, if the fund management company requested it within 6 months of the stock’s public listing.

"FPT Capital's management board believes that these are good shares, which if listed will have a price not lower than the original purchase price paid by FPT Capital, and that HAGL and Doan Nguyen Duc have the financial capacity to guarantee the shares’ repurchase as stated above," FPT Capital's 2011 financial report said.

HAGL Agrico's shares (HNG) were listed on HoSE on July 20, 2015 with the initial price of VND28,000 ($1.2). The stock rose to VND33,600 ($1.46) per share in its first trading session, but this was also the highest price it would attain. In the last three trading sessions, HNG shares were trading at VND15,700 ($0.68), less than half the highest price achieved.

The two parties have yet to speak out about the reason for FPT Capital to make the repurchase request, but it appears that the investment fund thought it prudent to use month’s ‘escape clause’ due to the poor performance of the share on the stock exchange, according to some experts.