BSEC approves stock dividends of some, rejects others despite audit opinions

The Bangladesh Securities and Exchange Commission's (BSEC) recent decisions on stock dividend approvals have triggered fresh debate in the capital market, as several companies have secured regulatory clearance for bonus shares despite having qualified audit opinions in their financial statements, while others have faced outright rejection on similar grounds.

In the latest round of decisions, the market regulator rejected the stock dividend proposals of Himadri Limited and Kay and Que (Bangladesh) Ltd, which had declared 100% and 6% stock dividends respectively. In official letters to the companies, the BSEC said the proposals were turned down due to insufficient retained earnings and the presence of qualified audit opinions in the audited financial statements for the year ended 30 June 2025.

According to the regulator, the audit qualifications related to several key balance-sheet items, including property, plant and equipment, deposits against value-added tax, creditors for expenses, and liabilities for workers' profit participation fund. These issues, the commission noted, raised concerns over compliance with international accounting standards and the reliability of the reported financial position, making approval of stock dividends untenable.

Kay and Que has, however, informed the stock exchanges that it plans to appeal the decision, seeking a reconsideration by the regulator. 

Market participants say the appeal will be closely watched, as it may clarify how rigidly the BSEC intends to enforce its stance on audit objections going forward.

A senior BSEC official told The Business Standard that the commission is no longer inclined to approve stock dividends for companies whose financial statements carry significant audit qualifications that point to financial mismatches or violations of international financial reporting standards. 

"Stock dividends should come from genuine retained earnings backed by clean and credible accounts. Where auditors raise concerns, approving bonus shares sends the wrong signal to investors," the official said.

However, the situation is complicated by existing regulatory provisions that allow certain companies to declare stock dividends without seeking prior BSEC approval. 

Under current rules, companies that have declared at least a 10% cash dividend in each of the two preceding years are exempt from mandatory approval for stock dividends. As a result, some firms have been able to announce and distribute bonus shares despite having audit objections in their financial reports.

Following this exemption, companies such as Index Agro Industries, Eastern Lubricants, Tamijuddin Textile Mills and Lovello Ice-Cream have declared stock dividends without approaching the BSEC, even though their audit reports contained qualifications related to financial management. 

The senior BSEC official acknowledged this regulatory gap and said the commission may take a closer look at the issue in the coming days to ensure consistency and stronger investor protection.

While some companies have been rejected, others have successfully secured regulatory approval for stock dividends despite auditor objections. 

According to sources familiar with the decisions, CVO Petrochemical Refinery, Mamun Agro Products and Quasem Industries have all received the BSEC's nod to issue bonus shares, even though their audited financial statements reportedly included qualified opinions regarding aspects of financial management. Star Adhesives has also received approval for a substantial 50% stock dividend.

At the same time, several companies remain in limbo, awaiting the regulator's decision on their declared stock dividends. These include Achia Sea Food, which has proposed a 35% stock dividend, BDCOM Online with 5%, and Krishibid Seed with 5%. 

Investors are watching closely to see if the presence of audit qualifications will ultimately determine the outcome of these applications, said a managing director of a brokerage firm.

He said the recent mixed outcomes highlight both the regulator's tougher tone and the inconsistencies created by existing exemptions. While the BSEC appears determined to prevent the misuse of stock dividends to mask weak fundamentals, the approval of bonus shares for some companies with audit objections raises questions about uniform enforcement

Data from the Dhaka Stock Exchange show that 17 listed companies have declared stock dividends so far. Among them, Achia Sea Food, Mamun Agro, Himadri, Star Adhesives and Krishibid Seed are listed on the SME board, adding another layer of complexity, as SME-listed firms often have different risk profiles and financial structures compared to main-board companies.

The regulatory framework governing stock dividends was laid out in a BSEC notification issued on 3 October 2022. 

The rules require companies to clearly state the reasons for declaring stock dividends and the intended use of retained earnings as capital. They also stipulate that bonus shares must be declared out of accumulated profits or retained earnings, and not from capital reserves, revaluation reserves, unrealised gains, profits earned before incorporation, or through any mechanism that would result in negative retained earnings after the dividend.

The notification also outlines situations where BSEC approval is mandatory. These include companies listed for less than three years or those that have not fully utilised IPO proceeds, firms that issued rights shares within the last three years without fully using the funds, companies that failed to declare a 10% cash dividend for two consecutive years, and issuers that have remained non-operational for at least one year outside of approved renovation or expansion periods. 

Companies trading under the Z-category or on SME, OTC or alternative trading boards may also face restrictions. 

Crucially, the commission reserves the right to reject applications if it finds significant misrepresentation in financial statements or believes the company will be unable to generate sufficient earnings to declare at least a 10% dividend in the following year.