Unclaimed dividends: Listed cos to face 2% fine for each month delay 

Infographic: TBS

Listed companies that fail to transfer unclaimed dividends, unsettled rights, and primary (IPO) share subscriptions to the Capital Market Stabilisation Fund (CMSF) by February will face a monthly 2% fine at a compound rate.

The Bangladesh Securities and Exchange Commission (BSEC) issued an order, making the fine effective from 1 March 2024. The dividends and funds will be transferred to the CMSF through its bank accounts, with fines imposed.

The market regulator had previously decided to impose a 2.5% surcharge starting in July for the failure to transfer unclaimed dividends and funds.

BSEC Chairman Shibli Rubayat-Ul-Islam told The Business Standard, "The previous decision has been repealed following the issuance of the new order. Under the new decision, companies failing to transfer dividends and funds to CMSF within the stipulated time will have to pay a 2% fine on top of the due amount."

After the formation of the CMSF in 2021, the commission directed listed companies to deposit their undistributed dividends of more than three years into the fund.

According to CMSF officials, some companies transferred 100% cash or bonus dividends, while others made no deposits at all. And some companies have deposited cash dividends but have not yet transferred bonus dividends.

Till date, around 80 companies have yet to transfer unclaimed dividends to CMSF, and they are delaying the transfer despite regulatory directives.

Due to BSEC's penalty measures in May last year, some companies promptly transferred dividends and funds, while others, including banks, are delaying the transfer to CMSF, citing the need for central bank permission, according to an official at CMSF who spoke on the condition of anonymity.

The BSEC's new order says if any issuer of listed securities fails to transfer any amount of unpaid, unclaimed, unsettled, or undistributed dividends (both cash and stock), right shares, or non-refunded public subscriptions, they will be required to transfer the amount with a 2% fine for each month of delay.

According to the BSEC estimate, the amount of undistributed dividends may be Tk21,000 crore initially. Some companies hurriedly distributed the dividends after identifying their shareholders.

With information from Central Depository Bangladesh Limited (CDBL) and the Dhaka Stock Exchange, the CMSF indicates that following the formation of this special fund, 354 companies might have disbursed cash dividends totalling Tk599 crore.

And 349 companies have 193.85 crore undisbursed stock dividends, whose current market value is around Tk8,107.05 crore.

Till December last year, the CMSF received around Tk1,600 crore – Tk1,000 crore as a stock dividend and Tk600 crore as cash – from the listed companies.

Of the funds, the CMSF lent funds to the Investment Corporation of Bangladesh (ICB) to invest in the capital market, and the CMSF launched a mutual fund.

Now it is lending Tk100 crore to support the stock market through intermediaries like brokers and dealers.

According to officials, while the companies responded well to depositing the cash dividends, they were indifferent to transferring bonus shares.

As a result, the commission has become stricter about collecting undistributed dividends.

The commission had decided to appoint an auditor to verify the claims of companies about distributing dividends after the initiative was taken to form the Fund.

Eighteen auditors will be appointed in about 50 companies, who will look into the disbursement and proper utilisation of long-standing dividends in the companies.

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

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.

The CMSF fund will primarily be used to stabilise the securities markets and ensure liquidity through the buying and selling of listed securities, investments in other securities, loans and other forms of support for market intermediaries and market makers, lending and borrowing of listed securities, and the resolution of investor claims.

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, and mutual funds.