Return unclaimed dividends to companies who paid them!
November 23, 2020474 views0 comments
By Victor Ogiemwonyi
Once again, the issue of unclaimed dividends has arisen. This time, the government wants to create a “Trust Fund” to take over the huge unclaimed dividends sitting with Nigerian company registrars. The value is currently put at over N150billion and counting.
This is not the first time this is coming up; this was first proposed by the Securities and Exchange Commission under Dr.SuleymanNdanusa when he was the Director General. This was vigorously fought at the time because the rightful place for these dividends is to return them to the companies who paid them in the first place. I remember writing an article at the time making exactly the same point. The money should go back to the companies who paid them as dividends for the benefit of shareholders.
The Government did not invest and should not receive any Dividends or benefit from this anomaly. Setting up a Trust Fund is another opportunity for wasteful spending. They will simply create another parastatal that will appoint directors and buy jeeps and spend money without adding any value. If you doubt me, take a look at Asset Management Corporation of Nigeria – AMCON and what it has become. It now manages airlines and leases jetties and manages properties all over the place. It is now a permanent parastatal without a terminal date. This was not the intention when it was set up.
At inception, it was intended to be a temporary entity to solve the bad debt problem of banks and disappear. It was to sell loans and assets to repay the grant from the Central Bank of Nigeria that set it up. The banks were even made to continually pay in annual premiums, to help pay off any short falls. What we have now is a full fledge parastatal employing an army of bureaucrats and spending money endlessly. Asset Management Companies in the world set up to do the same thing have all since closed their doors, once the banks were healthy again. Whether in Sweden or the USA, nobody remembers that there was once an Asset Management Company called “Resolution Trust Company” set up to clean up the Savings and Loans Associations debt overhang, in the USA. They have done their work and closed their doors.
The “Trust Fund” for unclaimed dividends, now being proposed in Nigeria is going to be another AMCON, with a life everlasting mandate. The unclaimed dividends have owners and the companies who paid them are the best place to put the money. It also aligns with the intention of the original investors to put their monies with the companies who will use them and pay them dividends. When the money goes to the companies, it will go to their reserves for the benefit of its shareholders. This will be additional profits in their general reserves that are yet to be declared as dividends in their books and any shareholder can at any time make a claim from the company directly when they realize they have dividendsthat were unpaid to them. It will benefit the companies and their shareholders, as it should. It will allow the companies to invest these funds to grow their businesses for the shareholders, as was intended. Can you imagine the good this will do to the overall stock market? It will be like a new recapitalization for some of these companies. It will strengthen the balance sheets of these companies, while benefiting their investors. There is no doubt that the rightful owners of this money are the company paying the dividends.
The question is why are quoted companies not binding together to make a demand for something that clearly belongs to them? This is something that clearly will benefit their shareholders; and if they were denied, can go to court to make their claim. But this is Nigeria, where everything has a different tint to it.
Some have claimed, that a conspiracy exist, amongst those whose interest it is to keep the status quo. N150billion and the interest on it, is large enough to keep everyone happy to look the other way. All that is required to sort this out is for the Securities and Exchange Commission, the supposed protector of investors in the market, to simply ask registrars to return all balances of unclaimed dividends to the companies who paid it to them, and to henceforth make report of unclaimed dividends yearly and to return any unclaimed dividends to the companies paying them at the end of the year in which the dividend was paid. Unless this is done, there will always be dividends unclaimed every year, because of how it started in the first place.
It all started with the indigenization decree of 1972 and 1977, which forced foreign owned companies in Nigeria at the time to divest a portion of their equity holdings to Nigerian citizens. Foreign owners simply put in names of their drivers and cooks as new owners. These new shareholders did not even know they had shares and the accumulated dividends due them will be the first stock of unclaimed dividends. The second wave was the privatization of government enterprises that required subscription to limited shares, to each application, which then incentivized some to apply in multiple names. These categories of shares will continue to generate dividends that will never be claimed. The suggested solution here will not only get rid of the current large unclaimed dividends, but will also make any new unclaimed dividends go back to the rightful place, the companies that paid them in the first place.
Victor OGIEMWONYI is a retired Investment Banker and writes from Lagos.