BSEC rejects Metro Spinning’s 5% stock dividend proposal
The Bangladesh Securities and Exchange Commission (BSEC) has rejected a 5% stock dividend announced by Metro Spinning Ltd for the financial year that ended in June 2021.
The board of the listed spinner recommended the dividend in October 2021 and then its shareholders approved the plan in its last annual general meeting on December 29.
The record date for entitlement of stock dividend was supposed to be notified later after getting the needed special approval from the BSEC.
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The company mentioned a planned BMRE (Balancing, Modernisation, Rehabilitation and Expansion) project as the reason behind the planned paid-up capital enhancement through stock dividends.
A BSEC official told The Business Standard that the justification of the company's plan did not satisfy the regulator.
The development has drawn a mixed reaction among stock investors as they might end up in no form of dividends for the 2020-21 fiscal year.
Earlier on 31August 2021, the BSEC issued a notification saying that the companies which are non-performing and have no good dividend history must take consent for raising capital through issuing bonus shares.
It came on the backdrop of a long trend of irresponsible stock dividends by listed companies over years only to retain their A or B category status in the bourses.
The regulator and the government in 2019 began putting some bars on unnecessary or deceptive stock dividends.
Experts say stock dividends do not need any real contribution by a company to their shareholders, while it needs the financial strength to pay cash dividends.
They also say stock dividends only make sense when a company needs to retain its profits within the company forever with a view to use the capital for business expansion.
The Finance Act 2019 imposed a tax on stock dividends that exceed cash dividends by a listed company for any year.
Later the BSEC came up with its tight rules for stock dividend last year.
According to the notification, the issuer company of listed securities who has failed to declare at least at 10% cash dividend for a period of two consecutive years from the date of listing with the stock exchange or from the date of declaration of the last dividend after listing with any stock exchange, must take approval from BSEC regarding issuing bonus shares.
Metro Spinning declared a 2% cash dividend for 2020, 2019 and 2017 while a 2% stock dividend for 2017.
And it had to seek BSEC approval for the planned stock dividend for the 2020-21 financial year.
The company has paid-up capital of Tk61.68 crore.
The company has also reported earnings per share of Tk0.99 for the year that ended on 30 June 2021 as opposed to Tk0.08 in the previous financial year.
Some other companies secured BSEC approval for their proposed stock dividends for the 2020-21 financial year, as they were not fit to directly issue stock dividends due to their track record.
