Securities dealers in the Nigerian capital market has faulted the plan by the federal government to manage unclaimed dividends which is projected to hit N200 billion by the end of this year.
As one of its last options to fund the economy, the federal government has in Section 39 of the 2020 Finance Act proposed that unclaimed dividends of less than 12 years be managed on behalf shareholders through Unclaimed Dividend Trust Fund, while after 12 years, the money would be forfeited to the government as perpetual debt to shareholders.
However, the plan has drawn the ire of capital market operators, who argued that the proposed legislation would have adverse effects on investor confidence and future growth of the market.
Addressing the Investigative Arm of House Committee on Capital Market and Institutions recently, the Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, said the bill was unnecessary because capital market regulators and operators had leveraged technology to put in place many initiatives that are already addressing the issue of unclaimed dividends.
According to him, such initiatives included: dematerialisation of shares which entails upload of quoted companies’ shares in the Central Securities Clearing System (CSCS) for ease of reconciliation, adoption of E-Dividend and E-Mandate, consolidation of multiple accounts, identity management engagements, and introduction of electronic Initial Public offering (e-IPO).
Others are the adoption of Minimum Operating Standards (MOS) for operators to enhance efficiency; intensified investor education, continuous stakeholders’ engagement, process reform and streamlining and know your customer (KYC) update on clients’ accounts among others.
“Generally, the incentives for savers and capital providers in the capital market is the expectation of dividends and capital appreciation. It is therefore our considered view that the proposed legislation, if passed, will be a great disincentive to savings, long-term capital mobilisation and serious disruption of the Nigerian economy since it will take away the only expectation of investors in the market,” Ezeagu said.
Speaking in the same vein, the President, Chartered Institute of Stockbrokers (CIS), Mr.Olatunde Amolegbe, described the Bill as objectionable at this stage of the market.
According to him, the Securities and Exchange Commission (SEC) would always ensure that unclaimed dividend is transferred to capital reserves of the company for restricted utilisation such as capital expansion and issuance of bonus shares to the company’s shareholders.
The Chief Executive Officer, Wyoming Capital, Mr.Tajudeen Olayinka, expressed dismay at the Bill, saying: “ If passed by the National Assembly, would amount to deleveraging the banking system, whose stock-in-trade is cash, while at the same time, putting too much pressure on public companies’ additional source of finance. Capital formation and investor confidence are at stake as well.’
Already, shareholders and financial experts have to kicked against the controversial Bill, saying government has no business with unclaimed dividends. Some shareholders’ groups are contemplating going to court to stop the bill.