BSEC stands firm on gathering unclaimed dividends

Following several warnings and deadlines for depositing unclaimed dividends to the Capital Market Stabilization Fund (CMSF), the stock market regulator is now becoming more stringent on gathering the funds that have been lying in issuer companies' accounts for years.

The Bangladesh Securities and Exchange Commission (BSEC) has decided to appoint external auditors to bring issuers into compliance with the rules and to verify the status of unclaimed dividend payments to the fund.

The regulator had set July last year for the deposit of the dividends, and some companies have complied with the order. But the majority have yet to do so.

Thus, the fund formed for the purpose of increasing the supply of liquidity in the capital market is not getting the expected results, due to which the commission has decided to appoint auditors.

As per its decision, the commission will now engage a maximum of four auditors and select issuer companies for audit based on information to be provided by CMSF, such as risk elements, default histories, and non-compliances of the issuer companies.

As noted in a letter from the BSEC to the CMSF, the auditors' panel will be formed and appointed by the commission.

The auditors will look into why companies are not depositing undistributed dividends to the fund and verify whether the claims of some companies that they have already disbursed the dividends to their shareholders are true. 

In 2021, the BSEC formed the CMSF with a view to collecting undistributed, unclaimed, or unsettled dividends – both cash or stock, un-allotted rights shares, or non-refunded public subscription money in favour of the shareholders, stockholders, or investors for investing the fund in the stock market.

After verifying the information of the companies, the commission said that the undistributed dividends of about Tk21,000 crore were lying with the listed companies.

The companies are not distributing the dividends because they cannot find shareholders. If this money is brought to the capital market through this fund, the supply of liquidity will increase.

Following the commission's initiative, the companies moved to provide the undistributed and unclaimed dividends to the shareholders.

According to the CMSF, the amount of the undistributed dividend now could be around Tk8,000 crore.

CMSF sources point out that more than Tk1,100 crore of dividends have already been accumulated – Tk507 crore in cash and Tk645 crore in stock. And the money is being credited to the fund from stock dividends.

The CMSF has so far settled claims for Tk5.95 crore with 467 investors.

However, there are questions about the legality of the formation of the fund by the BSEC.

At a meeting of the Bangladesh Bank with the capital market regulator in September last year, questions were raised about the formation of the fund.

However, it is expected that a decision on depositing undistributed bank dividends to the fund will be made later.

Md Monowar Hossain, chief of operations of the CMSF, told The Business Standard, "Listed companies are depositing undistributed dividends in the fund, but not up to expectations. While some companies have deposited dividends, some others have not deposited any at all."  

He said that most banks have transferred their unclaimed cash dividends but they are yet to transfer their stock dividends

He also said the undistributed dividends belong to investors. The money from the SMSF will be invested in the capital market. The ICB has already been given Tk225 crore for capital market investment, which has been invested.

Guidelines for formulation on the cards for stock market intermediaries' loan

The fund formed out of undistributed dividends will be invested in shares of listed companies. This fund can also be loaned to intermediaries in the capital market.

At present only loans are given to the ICB; no loans are given to market intermediaries as no guidelines have been formulated for the disbursement of loans.

According to CMSF rules, ‍a maximum of 40% of the cash balance of the fund may be used for direct buying and selling of listed securities. At least 50% of the cash in the fund shall be used for providing loans to market intermediaries for refinancing as margin loans, while a maximum of 10% may be used for investment in other securities, such as fixed deposits, government securities, fixed income securities, mutual funds, etc.

Md Monowar Hossain said, "The work of preparing guidelines for lending to market intermediaries is underway. The process by which the loan will be given has not been finalised yet. Loans will be disbursed only after guidelines are made. They can also invest in the capital market with the money from this fund."