The Dhaka Stock Exchange (DSE) has issued show cause notices on Confidence Cement and Bangladesh Autocars Ltd because the companies recommended dividends "violating" the rules.
The show cause notice on Confidence Cement Ltd states that the sponsors and directors who jointly do not hold 30 percent shares, have recommended stock dividends. The notice on Bangladesh Autocars stated that the company has recommended stock dividend in spite of having negative retained earnings.
In a circular issued on May 23, the Bangladesh Securities and Exchange Commission (BSEC) said no sponsors and directors will be allowed to raise the company's capital if they jointly do not hold at least 30 percent shares of that company.
The circular also said that a company with negative retained earnings will not be allowed to declare stock dividend. It can only give cash dividend from its current profit.
An official of the DSE said they have asked the two companies to explain their move which is in violation of the laws. Legal action will be taken if they fail to provide the DSE with satisfactory explanations.
Meantime, a Securities and Exchange Commission official preferring anonymity said the companies do not have the legal provision to revise their recommendations. However, they could bring changes in dividend if the shareholders agree at the annual general meeting.
Confidence Cement Ltd
The board of directors of the company on Saturday recommended 15 percent stock and 15 percent cash dividend to shareholders in for the 2018-19 accounting year.
The meeting decided to invest Tk10 crore, gained from the stock dividend, to Confidence Cement Dhaka Ltd — an associated company.
The dividend record date is November 21 while the annual general meeting is slated for December 22.
Sponsors and directors of the cement company hold 29.88 percent share; while the securities rule says that at least 30 percent of the total share must be held to declare stock dividend.
Company Secretary Delowar Hossain said they will respond to the show cause notice, but refused to elaborate any further on the company's plan.
The cement company posted a net profit of Tk39 crore while the Earnings Per Share (EPS) was Tk6.01 in 2018-19 accounting year. The year-on-year net profit was Tk37 crore and EPS was Tk5.67.
The company with Tk65 crore paid-up capital saw 13 percent price fall in its share in the last three months. The closing price of Confidence Cement shares was Tk133.90 on Sunday at the Dhaka Stock Exchange.
The maximum price of Confidence Cement share was Tk229.80 while the lowest was Tk128.10 in the last one year.
Saturday's board meeting decided to sell an 8-acre plot to Confidence Cement Dhaka Ltd for Tk10 crore.
Bangladesh Autocars Ltd
The company recommended 15 percent stock dividend in the 2018-19 accounting year, raising the amount of paid-up capital to Tk65 lakh. This amount will be used as working capital.
BD Autocar's dividend record date is November 11 while the annual general meeting will be held on December 15.
BD Autocars Ltd posted a net profit of Tk66 lakh while the Earnings Per Share (EPS) was Tk1.53 in the 2018-19 accounting year. The year-on-year net profit was Tk59 lakh and EPS was Tk1.52.
The company's cumulative losses, or negative retained earnings, till June 30, 2019 stands at Tk3 crore.
Rina Momtaj, managing director of Autocars, could not be reached even after several attempts for comment on the show cause notice.