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New push to recover investors' returns lost to a maze of real life & rules

Mohammad Mufazzal | April 30, 2023 00:00:00

A stock investor, Abdul Latif (not the real name) passed away in the 90's without deciding who would be inheriting his stock holdings.

His two successors got locked into a fight over the ownership of the shares of listed securities. Hence, the companies were unable to transfer dividends of the late Latif to anyone else. For years, the undistributed dividends piled up and remained in a dormant account.

The above example is just one scenario explaining why dividends have been undistributed or unsettled for long.

The Bangladesh Securities and Exchange Commission (BSEC) in 2021 estimated Tk 210 billion of undistributed or unclaimed dividends and formed Capital Market Stabilisation Fund (CMSF) to settle claims for dividends.

Quaiyum Khan, one of the founders of Independent University, Bangladesh, received undistributed dividends through the CMSF's intervention.

"My family's case regarding undistributed dividends was dissolved through prompt actions by the Stabilisation Fund," he said.

A multinational company, Singer Bangladesh has around 12,000 general shareholders. Around 800 of them still hold paper shares, said company secretary Kazi Ashiqur Rahman.

The shareholders may have forgotten that they have the shares or the ownership may have changed and the new owners are completely unaware of the existence of the assets. Some of them may also lack the knowledge that the paper shares had to be converted into an electronic form, a process called dematerialisation.

"We have to send their dividends through dividend warrants and 50 per cent of such warrants are returned," said Mr Rahman.

Thus, many investors lose out on dividends from investments made in the era of paper shares.

About 10 per cent of the dividends against demat shares [the shares that have been converted into digital form] is rejected by banks as the shareholders' account numbers are not updated.

As the Central Depository Bangladesh Limited (CDBL) started operating in 2000, investors began converting paper shares. Earlier, shares of listed securities were paper based and dividends were transferred manually.

After the introduction of the electronic fund transfer system, bank account numbers were changed adding new figures ahead of the previous numbers, explained Farhad Ahmed, a former BSEC executive director who once worked to settle investors' dividend claims.

"Many bank accounts were not re-opened accordingly and that's why the electronic system refuses to transfer dividends to those accounts," said Mr Ahmed, an incumbent managing director of Central Counterparty Bangladesh Ltd (CCBL).

Nominees' names are provided as investors open the accounts to transact shares digitally, still in some cases disputes arise over the ownership of dividends.

When the amount of dividends is significant, successors other than the nominee or nominees demand stakes and come up with an injunction order from the court.

In some cases, investors had purchased shares from other investors but did not transfer those into their digital accounts. In such cases, dividend warrants are sent to the addresses of the previous owner.

In the absence of the pro-rata basis IPO share allocation, many investors used to open as many BO (beneficiary owner's) accounts as possible, without mentioning accurate addresses, to apply for IPO shares.

Therefore, dividend warrants failed to get to the right address.

Many issuers took advantage of the problems surrounding dividend disbursement and withheld the returns.

Such companies deprived investors of dividends under the pretext of unavailability of investors or change of their addresses.

As of March this year, the Stabilisation Fund received undistributed cash dividends of Tk 5.15 billion and stock dividends of Tk 6.5 billion at the market price.

In the wake of the reluctance of many issuers to transfer unclaimed or undistributed dividends to the Fund, the securities regulator has decided to conduct audits of the companies to find out the exact amount of such dividends.

The CMSF is now at an advanced stage of forming a panel that will audit 50 companies in the first phase.

As per an initial estimate, dividends worth around Tk 63 billion remain in the accounts of those issuers.

The audit panel will be formed through competitive bidding, and a body comprising representatives of the securities regulator and issuers will oversee the process.

Meanwhile, four companies have transferred unclaimed or undistributed dividends into the CMSF's account.

Of those, Square Pharmaceuticals paid off unclaimed cash dividends amounting to Tk 40 million. Social Islami Bank transferred 1.15 million unclaimed bonus shares, Apex Weaving 0.45 million bonus shares and Tamij Uddin Textile Mills 0.50 million bonus shares.

Some other companies, including Singer Bangladesh, said they had already transferred unclaimed dividends into the CMSF's account.

The CMSF will be able to use the funds not claimed by shareholders to give a boost to the market.

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