11 November 2012

Nigeria: N52 Billion Unclaimed Dividends - Who Is Benefiting?


In this report, Chris Ugwu traces some factors that are likely to drive up the amount of unclaimed dividends in the Nigerian capital market.

Finding lasting solution to the problem of unclaimed dividends in Nigeria has been of great concern to the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) as well as investors whose returns on investment continued to accumulate annually without being claimed.

It is obvious that the clamour to reduce the amount of unclaimed dividend has gathered momentum. Institutional and corporate agencies, shareholders, associations, individuals and other government agencies have at one time or the other called for research and study that would assess the problems and proffer solution to this ever increasing rate of unclaimed dividend.

The e-dividend system of payment which was recently introduced by the Securities and Exchange Commission (SEC) in a bid to address the delay associated with the verification of proceeds of public offers as well as delay encountered by investors in getting returns on their investments has not recorded desirable impact at helping in the war against this menace.

According to experts, the value of unclaimed dividends in Nigeria, which was put in the region of N52 billion as at December 2011 by SEC, might further increase, unless something is done to urgently address the numerous challenges confronting the process of dividend payment and collection.

Why Unclaimed Dividends Continue To Skyrocket

Following the astronomical increase in unclaimed dividends in the country, some market operators have linked the inability of most registrars and shareholders to embrace the e-dividend initiative as a major reason that have continued to compound the woes of investors.

Speaking to LEADERSHIP SUNDAY, on the condition of anonymity, a senior stock broker said the inability of the registrars to key into the e-process has continued to be a constraint to the initiative meant to reduce the unclaimed dividends.

He noted that the intention might be deliberate as most times, the beneficiaries of unclaimed dividends are the Registrars of these companies because these monies are usually paid into their bank accounts in which however, the dividends become statute bared after a period of 12 years and the monies are returned to the companies that paid the dividends.

The Managing Director, Crane Securities Limited, Mr. Mike Okpara Eze also reacting to the rising wave of the unclaimed dividend said majority of the problems bedeviling the e-dividend malaise emanate from shareholders.

Eze noted that a good number of these shareholders are conservatively old-fashioned and do not want to embrace the process of e-transaction.

"They bluntly refused to complete their e-dividend formalities presented to them leading to a compounding of the problem," he said.

According to Eze, ever since the privatisation policy of the administration of Gen. Yakubu Gowon in early 1970's, unclaimed dividends has been a canker worm in the history of the capital market.

"During this exercise, those in position of authority who had the wherewithal, acquired shares in the privatised companies with fictitious names of their drivers, cooks, gardeners, dead brothers, dead fathers etc in such a way that when the dividends came, they were not able to claim them because there were no such persons to claim them".

Speaking in the same vein, the Managing Director Lambeth Trust & Investment Company Limited Mr. David Adonri explained that unclaimed dividends are increasing every year due to several factors which according to him, started several years ago during the indigenisation exercises when several shareholders made multiple subscriptions in fictitious names whose signatures they cannot remember.

He noted that the affected shareholders are also unable to open bank accounts in these fictitious names for the purpose of e-dividend collection.

He added that most of the unclaimed dividends are statute barred and forfeited to the companies in which case recovery by the affected shareholders may not be possible in the absence of means of identification.

Other conventional reasons responsible for the growth of unclaimed dividend include issues of shareholders who have died and without information on next of kin, multiple applications by applicants during the investment process and deliberate actions to deny investors their benefit through various schemes by some registrars and companies who lack liquidity to pay.

Other factors are loss of dividend warrants following poor postal system, change of mailing addresses without notifying the registrars and lack of awareness on the part of some investors.

However, the low value of dividend currently being paid out to shareholders due to the current market situation is further heightening the amount of unclaimed dividends in the vaults of companies listed on the Nigerian Stock Exchange. Several retail shareholders are ignoring the dividend companies have declared because the value is negligible.

Some get as low as N50 which if considered against the social cost or man hour loss that may be associated in claiming the dividend, they are left with no other option than to avoid wasting their time.

The major factors that will account for the astronomical rise in unclaimed dividends value is the recently introduced Central Bank of Nigeria's Nigerian Unified Bank Account Number, NUBAN, scheme and investors' rising apathy towards the collection of dividends with negligible or insignificant amounts.

Fitch Rating Agency, however, believes that internal capital generation in Nigeria banks needs to be addressed in the sector as the generous dividend policies demanded by investors are not conducive to sustainable loan book growth in the medium-term.

The new report considers that many Nigerian banks have thin levels of Fitch Core Capital, which are lower than is appropriate for Nigeria's difficult operating environment.

To the National Coordinator, Proactive Shareholders Association of Nigeria, PROSAN, Mr. Taiwo Oderinde, presently, "we have billions of naira as unclaimed dividends, and the CBN has started another move, in form of the NUBAN policy that will serve to aggravate the problem instead of solving it.

In addition to the problem posed by NUBAN is the issue of dividends with low value. If a shareholder living in a rural area or a remote location has a dividend warrant of about N200 or N300, it will be economically unwise for that individual to spend about N500 or N1, 000 on transportation to the bank to cash or pay that amount into his account", he said.

Recent Steps Taken By Regulators

Over the years, various measures have been proposed and adopted towards reducing or eliminating the increasing incidence of unclaimed dividends. Of note was the mandatory publication of the list of investor dividends that have remained unclaimed in the annual reports of the quoted companies as well as a bill recommending the setting up of an unclaimed dividend trust fund. The fund was expected to administer unclaimed dividends by going the extra mile to look for owners.

However, recently, the House of Representatives, disturbed by this geometric increase at a plenary session, passed a resolution mandating the House Committee on Capital Markets and Institutions to investigate the high volume of unclaimed dividends in quoted companies in Nigeria and report to the House.

SEC hailed the resolution, which came about through a motion sponsored by one Akpan Micah Umoh. Umoh had in his motion, said the unclaimed dividends were gradually mounting up to over N40 billion.

But SEC explained in a statement that the unclaimed dividends actually stood at N52.2 billion, saying that out of this figure, 84.7 per cent (42.5 billion) was held by nine out of 23 registrars who submitted their returns.

"This legislative attention to the intractable issue of unclaimed dividends is a positive development. It was out of concern for this unfortunate situation in which return on shareholders' investment by way of dividends is perennially locked in the unclaimed dividends saga that as far back as in 2002, the SEC sponsored a bill in the National Assembly for an act of parliament which will set up the 'Unclaimed Dividend Trust Fund".

"This fund and the Act of Parliament which set it up were intended to drastically reduce or completely eliminate the incidence of unclaimed dividend by providing alternative domicile for funds deriving from unclaimed dividends to what was stipulated in Section 382(1) of the Companies and Allied Matters Act", SEC said.

However, the apex regulator of the capital market explained that if passed into law, the 'Unclaimed Dividend Bill' would have removed the point of domicile for unclaimed dividends from their originating companies to another party managed Trust Fund and remove the incentive which feeds the collusion between certain players in the market to frustrate shareholder access to dividend accruals on their investment.

SEC declared: "Also deserving of urgent legislative attention is Section 385 of CAMA which provides that the right of a shareholder to sue for dividends subsists only for 12 years beyond which such action becomes statute barred. This deserves review.

Shareholders View

Majority of shareholders have voiced strong opposition to the proposed fund contending that it was an indirect way by the government to control the fund and as a private sector problem, it should be resolved by the private sector, adding that any fund that the government initiates or is in anyway involved in would be mismanaged.

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