Dollar crunch holds multinationals back from higher dividends

Infographic: TBS

Foreign companies operating in different countries may prioritise reinvesting earnings into growth opportunities over paying dividends to shareholders, but that may not always be the case.

Recent data show that foreign companies operating in Bangladesh are offering fewer dividends due to the unfavourable exchange rate. The taka has depreciated by around 25% in the past year, and there is also a crisis with the greenback, according to insiders and analysts.

As a result, foreign companies have chosen to retain earnings to mitigate currency exchange risks, which has resulted in lower dividend pay-outs to investors.

For example, British American Tobacco (BAT) Bangladesh, Grameenphone, Linde Bangladesh, RAK Ceramics, Reckitt Benckiser, Singer and Unilever Consumer Care all declared lower dividends for their shareholders for 2022 compared to the previous year. The companies, though, had been paying more dividends than profits for the previous years.

According to the Dhaka Stock Exchange (DSE), 13 multinational companies are listed on the country's premier bourse, of which nine have declared dividends and financial results for 2022.

Of them, five companies' profits declined and the rest registered a rise. Besides, only seven companies declared lower dividends in 2022 than in the previous year.

Meanwhile, Singer Bangladesh's dividend has fallen the most compared to the previous year. The company has proposed a 10% cash dividend for 2022, which is 83% lower than for the previous year.

Unilever Consumer Care is the next in terms of dividend reduction. The company paid a 45% lower cash dividend in 2022 than in 2021. However, the Horlicks maker has proposed a 60% stock dividend.

Among other companies, Reckitt Benckiser declared 41%, BAT Bangladesh 27%, Linde Bangladesh 24%, and RAK Ceramics 20% lesser cash dividends in 2022 compared to 2021, in that order.

Unilever Consumer Care and BAT Bangladesh paid a lesser dividend despite an increase in their profit in 2022 compared to the previous year.

According to officials of the companies, due to the dollar crisis, they are facing problems in foreign currency transactions with their related parties, including dividends and royalty fees. And this problem started in 2022.

BAT Bangladesh said in its 2022 annual report that its dividend policy is based on two main factors. The first is whether to pay dividends to shareholders, and the second is whether to keep profits and reinvest them in the company's further development.

Shahidul Islam, chief executive officer of VIPB Asset Management, told The Business Standard, "The dollar crisis is one of the reasons behind the decline in cash dividends of multinational companies. Besides, many are trying to retain profits due to the increase in business costs brought on by high inflation. And because of this, the dividend may decrease."

Instead of explaining why the cash dividend has been reduced, Unilever Consumer Chairman Masud Khan clarified the reason for paying a stock dividend.

"Our company's shares are being traded at a high price on the stock exchange. We intend to bring these shares within the reach of common investors. So it has been decided to give stock dividends. As a result, the price will decrease due to share dilution," he added.

According to the Bangladesh Securities and Exchange Commission (BSEC), the Mumbai-based Marico Bangladesh could not distribute the declared cash dividend to its foreign shareholders due to the dollar crunch. The company declared a 200% cash dividend for the fiscal 2021-2022 and 750% cash dividend as an interim dividend for the fiscal 2022-2023.

An official at the Bangladesh Securities and Exchange Commission (BSEC) said on condition of anonymity that the company could not remit the dividend money abroad due to the dollar crisis. It therefore applied to the commission, seeking permission to use the money as working capital. The commission has allowed it to use the dividend money as working capital until the dollar crisis is over.

Besides, Bata Shoe could not remit the interim dividend declared in 2022, while Heidelberg Cement could not send the dividend for 2021 to its foreign shareholders.

The dollar crisis began in the country in June 2021. In the following year, the level of this crisis intensified. Banks bought dollars from the Bangladesh Bank to pay the import liabilities of big government companies, including Bangladesh Petroleum Corporation (BPC), Petrobangla and Bangladesh Power Development Board (BPDB).

About $8 billion of reserves were sold from July to 8 January of the current fiscal year. In the last financial year, too, sales from reserves were $7.41 billion. Through this, the central bank has withdrawn more than Tk1 lakh crore from the market by selling dollars to solve the crisis.

The country's foreign exchange reserves have also been strained due to the impact of increased dollar spending. Reserves stood at $33.75 billion at the end of December last year, compared to $41.83 billion at the end of June last year. Reserves fell by nearly 20% in six months.

And when compared to the period ending in December 2021, the reserves had decreased by about 27% at the end of December last year.