OPINION: Nigeria’s Unclaimed Dividends Fund, Another AMCON Loading

 

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 N150bn and counting.

This is not the first time this is coming up, this was first proposed by the Securities and Exchange Commission under Dr. Suleyman Ndanusa 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 their shareholders. The government did not invest and should not receive any dividends, or be seen as benefiting 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 SUVs, and spend money without adding any value.

If you doubt me, take a look at the Asset Management Corporation of Nigeria (AMCON) and what it has become… It now manages sprawling properties all over the country, airlines, and leases Jetties.

It has become a permanent Parastatal with a sunset date that has changed and could change again and again, a shift from the intention when it was set up as a temporary entity to resolve the bad debt problem of banks and thereafter fade away.

AMCON was to purchase bad loans from banks, and relieve them of the stress of becoming debt recovery at the expense of their core business of financial intermediation; recover the loans to repay the initial grant from the Central Bank of Nigeria (CBN) that set it up.

The banks were even made to continually pay annual premiums to help liquidate any shortfalls that may arise.

What we have now is a full-fledged parastatal that employs an army of bureaucrats and spends money endlessly, unlike its counterpart Asset Management Companies in the world which were set up to do the same thing (buy bad bank loans). They have all since closed their doors, once the banks were healthy again- whether in Sweden or the USA.

Nobody remembers, for example, that there was once an Asset Management Company called “Resolution Trust Company“ set up to clean up the Savings and Loans Association’s 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 which paid them are the best place to put the money into productive activities. 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 reverts to the companies, it will go into their reserves for the benefit of shareholders. This will be additional profits in their general Reserves yet to be declared as dividends in their books and owner-shareholders can make a claim at any time from the company directly when they realize they have unclaimed dividends. 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 fresh recapitalization for some of these companies, strengthen their Balance Sheets while benefiting their investors. There is no doubt that the rightful owner of this money is the company paying the dividends.

The question then becomes: why are quoted companies not bonding together to demand something that clearly belongs to them… something that clearly will benefit their shareholders and if they were denied, can go to court to make their claim.

But, then, this is Nigeria where everything has a different tint to it. Some have claimed that a conspiracy exists amongst those whose interest it is to maintain the status quo, given that the N150bn pool and the interest thereof, is humongous enough to keep everyone happy while looking away.

All that is required to sort this out is for the Securities and Exchange Commission (SEC), the 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. They will subsequently prepare a report of unclaimed Dividends yearly and then return any such unclaimed Dividends to the companies declaring it at the end of the year the dividend was paid.

Unless this is done, there will always be Dividends that are unclaimed yearly, because of how it started in the first place.

I recall that it all started with the Indigenization Decree of 1972 and 1977 that forced foreign companies operating in Nigeria at the time to divest a portion of their equity holdings to Nigerian citizens.

Some of these foreign owners simply fill in the names of their drivers and cooks as new shareholders who did not even know they owned shares, following which the dividends due to these categories of investors formed the initial stock of Unclaimed Dividends.

The second wave was the privatization of Government enterprises that required subscription to limited shares to each application, which ultimately incentivized some to apply using multiple names and different combinations of their names and those of their immediate and extended family members.

These categories of shares have continued 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.

By Victor OGIEMWONYI, a retired Investment Banker writes from Lagos.

https://investdata.com.ng/opinion-nigerias-unclaimed-dividends-fund-another-amcon-loading/