Listed companies' hands are now tied on issuance of unjustified stock dividends as the securities regulator likes investors to relish cash gains from their money in time, lest they shouldn't be deceived.
A new set of rules barred listed companies from issuing stock dividends from capital reserves or revaluation reserves or unrealised gains.
The stated objective is to enable investors to benefit by way of containing 'intentional' practice of expanding the companies' paid-up capital.
The Bangladesh Securities and Exchange Commission (BSEC) issued the latest set of rules through a gazette notification, evidently in view of a spree in handing out dividends in terms of stocks as bonus shares.
Five types of companies, including Z-category ones, have also not been allowed to issue stock dividends or bonus shares without prior consent of the commission.
As per the BSEC decrees, immediate after declaration of stock dividends or bonus shares, a listed company will have to disclose price-sensitive information (PSI) that it has not declared such dividend from capital reserves or revaluation reserves.
"There are a lot of listed companies which did not issue cash dividend even once after their listing with stock exchanges. We want to change this trend as investors expect returns," said Dr Shaikh Shamsuddin Ahmed, a BSEC commissioner.
He said for example that a company which went public with a very small paid-up capital issued bonus shares year after year and its paid-up capital now stood above Tk 10 billion, Mr Ahmed said.
"Investors are not aware of the existence of many companies' reserves. But the companies issued bonus shares from the reserves. That's why we have barred the companies from issuing stock dividend from revaluation reserves or unrealised gains," said the BSEC commission.
The BSEC directives say the issuer companies of the listed securities have to make it clear that stock dividend has not been declared from any unrealised gain or out of profit earned prior to incorporation of the company or through reducing paid-up capital or through doing anything so that the post-dividend retained earnings become negative or a debit balance.
Any company which is not in operation or production or business continuously for a period of minimum one year, excluding any such period for renovation or BMRE, will not be allowed to issue bonus share without prior consent of the commission.
Without prior consent, an issuer company of the listed securities also will not be able to issue stock dividend within three years of listing with the stock exchanges.
Besides, an issuer company which is listed with stock exchanges raising funds or capital through any public offer or direct listing will not be allowed to issue stock dividend until full utilisation of funds or capital raised through public offer, whichever comes later.
The companies will not be allowed to issue stock dividends within three years of raising capital through rights-share offer or repeat public offer (RPO) or until full utilisation of rights issue or RPO funds or capital, whichever comes later.
A listed company which has failed to declare at least 10 per cent cash dividends for a period of two consecutive years from the date of listing will also not be able to issue bonus shares without prior consent.
The listed companies whose shares or securities have been trading under 'Z' category on the main board or trading at the OTC (over-the-counter) platform or ATB (alternative trading board) of any stock exchange will not be allowed to issue bonus shares sans prior consent.
Talking to the FE, a senior BSEC official said they found at least 30 companies, including Familytex (BD), having issued bonus shares continuously just after their listing with bourses.
"The sponsor-directors of those companies sold out their shares leaving the companies in miserable situation," said the BSEC official.
The BSEC rules have it that any issuer company of the listed securities may issue bonus shares or declare stock dividends only for the purposes of the company's BMRE, or any BMRE components, or regulatory requirements to raise capital, or profitable investment or reinvestment in the company.