Market operators have expressed confidence that the e-payment platform may finally stem the tide of unclaimed dividend in the country if the current vigour is sustained, CHRIS UGWU reports
It was about 2.25p.m. on Thursday April 25, just a few minutes after the ringing of the closing bell to announce the end of trading activities on the floor of the Nigerian Stock Exchange (NSE).
Mr. Peter Adekunle, one of the investors in the stock market, was still standing at the gallery of the ninth floor of the NSE, gleefully staring at the dashboard on the trading floor. At a cursory look, one would have thought he was studying the figures on the dashboard to ascertain the price movement of his shareholdings but when our correspondent tried to engage him in a discussion on his feeling about rebound of the market which many generally believed the improvement in economy after the country exited recession had quickened investors’ appetite for equities as upsurge in demand is gradually restoring the flagging market indices Adekunle was far from thinking about the recent upward trends in the market. Rather, he was preoccupied about how to select more stocks that have good fundamentals to buy. When asked why he was thinking of more stocks to increase capital gains while other investors are still on the side-lines following investment apathy since 2008 stock market crash, he explained that his renewed appetite came from what he was currently benefiting from the e-dividend system of payment 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.
He said: “The system, which was introduced to reduce the incidence of unclaimed dividends, is gradually recording a positive impact. My relief now is not that my stock portfolio worth about N12 million before the financial meltdown and has plummeted to about N4 million has recorded any significant improvement in value but that I now find it easy to get the kobo dividends which many companies are declaring nowadays. In fact I will like the regulatory authority to sustain the campaign for e-dividend enrolment.”
Adekunle is just one of the thousands of Nigerian shareholders who are no longer passing through difficult times in assessing their dividends payments which SEC as apex regulator of the Nigerian capital market, saddled with the primary responsibility of investor protection, has the right to ensure that investors are not denied their dues from investing in the market.
With the recent experience of Adekunle, it is obvious that the market has developed in leaps and bound from what it was about 10 years ago when the global meltdown took its toll on it.
From changes in management to the introduction of technology and other relevant facilities, the Nigerian stock market has been able to attract back thousands of investors who were otherwise discouraged as a result of the economic crisis.
As at today, according to the SEC new acting Director-General, Ms. Mary Uduk, the technical committee on e-dividend reported that the total and approved mandate currently stood at 2.5 million.
The shareholders consequently are celebrating their decision due to the ease with which their accounts are usually credited after each annual general meeting.
This is one feat that has been roundly commended by shareholders, who were either made to go through rigours in getting their dividends in the past or in most cases never bothered about it thereby reducing the incidences of unclaimed dividend which had remained cankerworm to investment and development of the nation’s capital market.
Reasons for high rate of unclaimed dividends
Reasons responsible for the growth of unclaimed dividends 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.
The Managing Director, Crane Securities Limited, Mr. Mike Eze, traced the genesis of the rising wave of unclaimed dividends to indigenisation era of the administration of General Yakubu Gowon.
He said: “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 is no such persons to claim such”.
Speaking in the same vein, The Managing Director of High Cap Securities, Mr. David Adonri, explained that unclaimed dividends were increasing every year owing to several factors.
According to him, the problem started several years ago during the indigenisation exercise 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.
Adonri added that most of the unclaimed dividends were statute barred and forfeited to the companies in which case recovery by the affected shareholders might not be possible in the absence of means of identification.
However, over the years, previous measures have been proposed and adopted towards reducing or eliminating the increasing incidence of unclaimed dividends.
The commission had directed the existing share application form in respect of public offering of securities to include information on next of kin and bank account number.
A memorandum on this was sent to the Nigerian Law Reform Commission on the review of the Companies and Allied Matters Act suggesting that after three months expiration, the unclaimed dividends should be paid into trust account to be managed by professional fund managers for the purpose of paying the shareholders whenever they come forward to claim their dividends. It was further suggested that consequently, the 12 years limitation period to recover dividends should be removed.
The recommendation was for the establishment of an unclaimed dividends trust fund by every company to protect investors’ interest. This would be managed by independent fund managers for the purpose of ensuring that dividends are no longer statute-barred after 12 years and that investors have access to their dividends whenever they appear to claim them.
Funds realised may be invested in outlets like the priority infrastructure or sectors of the economy that will generate the relevant multiplier effects to stimulate economic growth and create wealth and employment in line with the expectations of NEEDS, which emphasise private sector-driven economy.
According to the former Director-General of SEC, Mr. Musa Al-Faki, of note was the mandatory publication of the list of investor dividends have remained unclaimed in the annual reports of the quoted companies as well as a bill recommending the setting up of an unclaimed dividends trust fund. The fund was expected to administer unclaimed dividends by going extra mile to look for owners. He noted that evidence abound on how some companies used unclaimed dividends to manipulate their results. The concern, according to him, informed the initiative to set up the trust fund which unfortunately the bill after even being reintroduced is yet to sail through.
E-Dividend to the rescue
E-dividend is an electronic means of posting shareholder’s dividends directly into his or her bank account. So it doesn’t matter where an investor is located, his dividend goes straight into his bank account. At this year’s first quarter post Capital Market Committee (CMC) news conference in Lagos, Uduk explained that the technical committee on e-dividend reported that the total and approved mandate currently stood at 2.5 million, translating to 466,000 unit investors.
The electronic registration is expected to help investors receive from the banks unclaimed dividends from their investments in stock and equities in the capital market valued at over N90 billion. Companies listed on the stock exchange have been encouraged to help in sensitising their shareholders on the need to embrace the new dividends platform within the deadline.
The introduction of the e-dividend is designed, according to the acting SEC DG, to curb the growth of unclaimed dividend in the capital market and allow investors collect dividends electronically. It also allows all accrued dividends to be credited to investors’ bank accounts. The e-dividend has the potential to further deepen the capital market and ensure security of returns on investments. It has the added benefits of ensuring that you never lose your dividends and that they get paid to you on time.
“The e-dividend form could be obtained and properly filled at bank branches or in the office of a registrar and stock broking firms, or could be downloaded and filled by individuals,” she said.
Before the current sustained awareness on registration for e-dividend started, over N90 billion was said to be unclaimed dividends. This fund was either just lying there idle, or some fraudsters were taking advantage of it and using it for personal or corporate gains as have reported in some quarters.
But since the commencement, over N30 billion unclaimed dividend has been credited to investors’ bank accounts.
“In this country, we have never had this kind of initiative that has reduced unclaimed dividends like we have today. Apart from the investor getting his dividends where ever he is, that investor will be able to get dividends that in the last five years he has not been able to get,” Munir Gwarzo, the SEC Director-General, who is now on suspension, told journalists last year.
Nigerian Capital Market Development Fund
In a bid to also find lasting solution to the problem of unclaimed dividends, SEC recently established the Nigerian Capital Market Development Fund (NCMDF), with an eight-man board to guide its operations.
The establishment follows an earlier circular to capital market stakeholders calling for a consideration of a new rule that will set up the NCMDF, which will take custody of all unclaimed dividends that are 12 years old and above.
Under the existing laws, unclaimed dividends will remain available for collection by beneficiaries up till 12 years when they become statute-barred and are returned to the companies that paid them. But the new rule sought to change the return of the unclaimed dividends to companies that issued the dividends.
According to SEC’s proposed “rule on application of 12 years and above unclaimed dividends”, companies and registrars in custody of dividends which remain unclaimed by shareholders 12 years after the date of declaration or subsequently attain the 12 years threshold shall upon the coming into effect of this rule transfer such monies to NCMDF.
“All companies and registrars shall not later than 30 days after the end of every calendar year forward to the commission a report of unclaimed dividends in their custody, which shall specify compliance with Sub Rule (1) of this Rule. Companies shall disclose details of compliance with this Rule in their annual reports,” SEC stated.
However, major retail shareholders’ groups have kicked against the plan to return statute-barred unclaimed dividends to NCMDF, describing it as a ploy to divert private funds into the control of the regulator.
More reasons for NCMDF
Speaking at the inauguration of the board of NCMDF, former Chairman of the Board of SEC and former DG, Dr. Suleyman Ndanusa, commended the SEC on its efforts at discharging its primary mandate of regulating and developing the Nigerian capital market, particularly in the area of investor protection.
Ndanusa said it was on record that the apex regulatory organisation, in recent times, in its unrelenting efforts, implemented numerous initiatives which, according to him, aim at developing the market.
He said: “Some of them include the launch of the National Investor Protection Fund, a trust scheme established to compensate investors who incurred losses arising from insolvency and bankruptcy. Another one is dematerialisation of share certificate, direct cash settlement system, and the on-going e-dividend registration.
“Here we are this morning witnessing yet another milestone which is the inauguration of the board of NCMDF. The SEC and the entire capital market community certainly deserve commendation for this.”
Ndanusa said the primary focus of establishing the NCMDF was to fund relevant market development initiatives that would spur growth of the market and the Nigerian economy.
The fund also seeks to facilitate the introduction of proper understanding of new products to deepen the market, provide capacity building to tackle emerging challenges and create an industry wide synergy through partnership with government and non-governmental agencies and corporate bodies with similar objectives.
Considering the dynamic nature of the global economic system, particularly the financial sector, regulators worldwide continue to seek relevant initiative to create opportunities and tackle emerging challenges.
“The lunch of the Nigerian Capita Market Development Board is therefore expected to contribute greatly towards the developmental efforts of the SEC to grow the market, enhance financial inclusion and regulatory visibility. I am glad to note that the board members chosen have impressive pedigree and were selected on account of their proven integrity, wealth of experience and unrelenting contributions towards the development of the Nigerian capital market,” he added.
In his remarks, the SEC DG who doubles as the NCMDF Board Chairman, Gwarzo (on suspension), said the inauguration promised to be another significant landmark in the achievement of the commission’s mandate to deepen the market and enhance the nation’s socio-economic development.
Gwarzo said SEC developed the 10-year Capital Market Master Plan (CMMP) as a blueprint for the development of a vibrant capital market in Nigeria and had been putting all its energy, resources and time into implementing the Master Plan.
He said: “The commission has provided the initial take-off grant for the fund but going forward the entire capital market community should come together to discuss details of how we can all contribute to the continued funding for this critical market vehicle.”
Though leading retail shareholders’ groups objected to the rule of NCMDF, contending that it was an indirect way by the government to control the fund and that as a private sector problem, it should be resolved by the private sector, they lauded the e-dividend payment to have impacted positively on shareholders.
President, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said: “We thank God that now dividend is being paid to shareholders who have keyed into the e-payment as soon as companies declare dividends.
“In fairness, most of the companies that have declared so far have been delivering. We are receiving fillers from our members that they have got lots of millions from the unclaimed dividends over the years.
“Our stand is that when they are delivering to those who have migrated, they should also simultaneously issue dividend warrant certificates to those who have not subscribed as in doing so will help reduce the unclaimed dividends. However, the regulators still need to intensify efforts as regards awareness campaign to bring more people on board.
“We can only support the rule if am convinced that shareholders are part of the management of the fund. The fund should be free from government interest. If it is tailored towards development of capital market, we will support it.”
National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Adeniyi Adebisi, noted that the system was working very well.
According to him, the only problem is that some investors are not yet captured on the platform.
He said: “Currently at some of the AGMs, we have got our accounts credited while the meetings were on. My personal experience is that when I processed my e-dividend, I witnessed so many alerts flowing. Once you formalise your migration, you will be paid all the outstanding. The policy is one of the best things that have happened to the market and my advice to those who have not enrolled is to make efforts to key into the platform.”
Investors’ protection and the restoration and sustenance of investors’ confidence in the market is key to attain a world class capital market, hence it is expedient for the regulators to continue to pursue initiatives that would boost the market, especially the retail investors.
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