As unclaimed dividends continue to increase, Olaseni Durojaiye looks at the causes, how the strategies adopted to deal with the issue appear not to be achieving the desired results and reports stakeholders’ suggestions on way forward
As the problem of unclaimed dividends in the country’s capital market persists and continues to increase year on year even in the face of the adoption of some policy initiatives expected to address the challenge, the issue has returned to the front burner of discourse in the industry. This is as investment analysts, industry watchers, particularly shareholders’ rights groups call for a re-think of how the issue is addressed in the interest of the shareholders.
The call for a fresh strategic approach to the issue is premised on some knotty issues, which border on litigation, rules of engagement concerning payments of dividends to parents’ bank accounts in the instance that parents bought shares for their wards who are minors and who don’t have functional bank accounts. Besides, one respondent to THISDAY enquiries maintained that the current approach to the issue was unmindful of some of the causes of the problem, adding that the implication is adverse to the economic development of the country.
The Rising Trend
Though shareholders use dividends to wrest resources from the control of managers while corporate managers use dividends to send credible profitability signals to the capital market, in Nigeria however, shareholders are unable to reap a significant chunk of the dividends that are declared by companies leading to the problem of unclaimed dividends. THISDAY findings revealed that unclaimed dividends have continued to rise over the years in Nigeria. Between 2002 and 2013, the unclaimed dividend increased from N5.1 billion to N60 billion. The figure, according to the Securities and Exchange Commission (SEC), now stands at over N80 billion.
Apart from proposing a new strategic approach to the issue, the contention amongst a section of the industry remains that the current scenario is a no win situation for the country’s economy and the shareholders. Another section however disagreed, arguing that the current situation benefits quoted companies and some registrars.
The Strategies
Though SEC has come up with a couple of strategies to address the issue the figure keep going northward. Part of the strategies include the directive to Registrars of public companies to return all unclaimed dividends which has been in their custody for upward of 14 months to the paying companies.
Also, in July 2015, SEC launched an e-dividend enrolment and payment scheme. The e-dividend scheme, according to Head, Corporate Communications at SEC, Naif Abdulsalam “has been a priority initiative for the entire capital market in a bid to curb the growth of unclaimed dividends and improve the overall efficiency of Nigeria’s equities market,” he stated.
Before then, also in an effort to stem the increasing tide of unclaimed dividends, SEC in 2008 launched the e-dividend payment system, which was expected to enhance the efficiency of dividend administration in the Nigerian capital market. The e-dividend system was primed to ensure that accounts of the investors in banks are credited directly within 24 hours after the declaration of dividends by the companies.
The e-payment platform which was launched in collaboration with the Central Bank of Nigeria (CBN) and the Nigeria inter-Bank Settlement System (NIBSS) was also devised to eradicate the difficulty encountered by retail investors in claiming their dividends through their savings account. Still, the issue persists.
Implications
Observers opined that among other drawbacks, the trend affects investors’ confidence negatively, hence the call for measures to address the problem. The legal position of unclaimed dividend is that dividends, which remain unclaimed after 15 months of being declared are to be returned to the company from which the beneficiary/investor may make a claim not later than twelve years afterwards. Subsequently, such unclaimed dividends are considered statute-barred and thus forfeited by the shareholders.
But this does not sit well with shareholders’ rights groups who expressed their misgivings in separate interviews with THISDAY.
An investment analyst who preferred not to be identified explained that another implication concerns regulation of the capital market. According to him, “the implication of unclaimed dividend on the economic development of the country is negative investors’ confidence in the capital market. Capital market is an engine for economic development. Besides that it provides an important alternative source of long-term finance for long-term productive investments that helps to reduce pressures on the banking system as it matches long-term investments with long-term capital, it also provides avenues for investment opportunities that encourage a thrift culture critical in increasing domestic savings and investment ratios that are essential for rapid industrialisation,” he stressed.
Yet another investment analysts and Executive Director, Corporate Finance, BGL Securities, Olufemi Ademola, stated that “the implication of this development is that a number of investors do not receive their dividend income, hence such investors are not reaping some of the benefits of investing in the equity market which may be preventing them from investing more in the market. This negatively impacts investors’ sentiments about the market.”
Causes of the Problem
In an interview with THISDAY newspaper, President of the Association of the Advancement of Shareholders’ Rights, Dr. Farouk Umar, noted that some of the causes of the problem of unclaimed dividends border on litigation and, inability of parents to pay dividends from shares that they bought for their children who are minors and have no bank accounts into the parents’ bank accounts.
In his own summation, Ademola traced cause of the problem to two factors: “On the one hand, we could blame the inefficiencies of the postage systems while on the other hand; some of the investors do not have traceable postal addresses. However, we wouldn’t rule out the human and system errors made by the registrars,” he argued.
Way Forward
In suggesting the way forward, a section of the industry suggested that going forward completion of the e-dividend form could be made a compulsory requirement for investing in the equities market. Another section suggested that the fund should be made available to government via borrowings to fund developmental projects and finance infrastructure.
But Dr. Umar kicked against such and stated that “under no circumstances should the government have anything to do with the funds,” adding that the “chances of the funds being misappropriated or diverted to something else is high. You can imagine what could have happened to the fund if it were available before the last presidential elections,” he stated.
Instead, he posited that a trust fund should be set up to manage unclaimed dividends to the benefits of the affected shareholders whenever they turn up for it with convincing proofs of ownership or legal rights over the unclaimed dividends.
“Some of the unclaimed dividends belong to deceased people whose relations are embroiled in litigation over the shares. In the case of unclaimed dividends belonging to deceased people, e-payment won’t work. Again people buy shares for their children who don’t have bank accounts and when the dividends are out the parents can’t pay it into their own accounts. That way it does not benefit the shareholders in any way because they are not earning any money; rather they lose money.
“That’s why we call on SEC to revisit setting up of an Unclaimed Dividends Trust Fund to manage the fund. The management of the fund could consist of people drawn from SEC, Ministry of Finance, shareholders body and people with verifiable credibility and integrity. They should be saddled with managing the fund, they can invest in ventures so that when the owners eventually come forward for it they will earn interest on their unclaimed dividends,” he argued.
Ademola and a Research Analyst with the Nigerian Economic Summit Group (NESG),Wilson Erumebor, appear to toe the same line. Erumebor frowned at making the money available to government for funding infrastructure since according to him, “that is a long term project that may not deliver commensurate returns.” Instead, Erumebor said “a better option is to invest the funds in assets; that way, the fund guarantees commensurate returns and the principal sum is handy in the case that the original owners suddenly turn up for it.”
On his part, Ademola explained that “Since it appears to be a pool of funds that can be regarded as savings, it could be tempting for the government to consider using the fund to finance infrastructure development. However, that would not be different from the current situation where the Company Registrars invest the monies for personal benefits. In addition, since the money belongs to investors who may come at any time to claim it, investing such in a long term infrastructure projects could lead to an asset-liability mismatch. Short term investments in which the returns are shared to the fund beneficiaries would be more apt. I will rather advise that the total fund should be invested in short term risk free investment and managed for the benefits of the investors or their beneficiaries,” Ademola said.
Continuing, Dr. Umar added that, “I don’t support that we rush into a decision of what to do with it. In fact, I call on National Assembly Committees on Capital Market in the Senate and the House of Representatives to call for a public hearing on it and let stakeholders make input on way forward. Definitely, we don’t support giving the federal government access to it because it could be misappropriated or diverted to other mundane issues,” he concluded.
Interestingly, THISDAY findings revealed that Dr. Umar’s suggestion to some extent is similar to what obtains in Malaysia.
The Malaysia Scenario
Findings revealed that in Malaysia, the Unclaimed Money Registrar is governed by the Unclaimed Money Act, which recognises unclaimed dividends as dividends payable to shareholders but have remained unpaid for a period of not less than twelve months as unclaimed dividends.
Under the system, the share registrars register the details of any unclaimed dividends and lodge with the Registrar of Unclaimed Money based on an annual cycle commencing from January to December of the same year. It is also sent to the National Printers for gazette in accordance with the provisions of the Unclaimed Money Act. By March of the following year, any remaining unpaid or unclaimed dividend will be lodged together with the cheque to the Registrar of Unclaimed Money. A shareholder may present a claim through the share registrar for payment of any unclaimed dividend or request the company to re-issue the dividend warrant. To a large extent, the Unclaimed Money Registrar in Malaysia ensures that shareholders always have right to their dividends.
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