Dividends are a component of the return an investor receives when investing in stocks. Current regulations require dividends to be paid within 6 months from the date of the closing of the shareholders' meeting, but many businesses are slow to do so.
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| Becamex IJC owes State shareholders nearly 50 billion VND in interest for late dividend payments. |
All kinds of missed dividends
The documents for the 2024 Extraordinary General Meeting of Shareholders of Kinh Bac City Development Corporation - JSC (Kinh Bac City, stock code: KBC) announced last weekend surprised many investors. The plan to distribute 2022 after-tax profits at a rate of 20% in cash was approved by shareholders at the June 2023 meeting, but is likely to be canceled at this year's meeting.
Specifically, according to the report sent to shareholders, the Board of Directors of Kinh Bac City gave two reasons: First, the enterprise prioritizes concentrating all financial resources in 2023 to buy back all outstanding bonds due and before maturity with an amount of more than VND 4,060 billion, bringing the outstanding bonds to VND 0. Second, it must arrange financial resources to ensure the implementation and expansion of projects.
It is worth mentioning that, at the time of approving the dividend plan, the settlement of bond debt and the ambition to expand investment were mentioned by Kinh Bac City's Board of Directors. Not to mention, from the end of 2022, this enterprise also planned to spend thousands of billions to buy back KBC shares. The initial plan was 100 million shares, then reduced to 50 million shares and currently, according to the plan at the next meeting, it will be completely canceled.
With changes in cash flow projections, the Board of Directors said it will present a different profit distribution plan to shareholders at the 2024 Annual General Meeting of Shareholders. The 2022 dividend remains a question mark at this time.
Shareholders can sue in court if a company violates the dividend payment. However, the complicated procedures and the time it takes to file a lawsuit discourage shareholders.
It is not unprecedented to have a plan approved by shareholders and then canceled, or even delayed for many years without implementation.
Although rice export activities have achieved many successes in the past year, Binh Dinh Food Joint Stock Company (Bidifood) - a subsidiary of Vinafood2, has struggled to balance cash flow.
“The cost of goods has increased dramatically by more than 50% since July 2023, while the Company has to maintain a circulating reserve of more than 3,000 tons of rice (VND 46 billion), leading to limited capital; capital efficiency has decreased and interest expenses have increased. The Company's financial situation is very difficult, there is no money to pay the remaining dividends,” said Bidifood Chairman of the Board of Directors, Mr. Le Phat Tai.
Bidifood's 2022 dividend was reduced from 170.5% to 30%. Although 10/35 shareholders voted against it, the above content was approved.
There is no resolution to change dividends, but shareholders of Song Da Urban and Industrial Zone Development Investment Joint Stock Company (Sudico) regularly receive notices of changes to postpone the payment date of cash dividends for 2016 and 2017. The financial situation is still difficult, which is the reason that is constantly given.
Sudico has many changes in 2023, from the leader, the plan to restart large projects, to a clear improvement in cash flow from business operations. However, the plan to pay old dividends and distribute profits in 2023 may have to wait until the shareholders' meeting on March 20 to have a solution.
The mechanism to protect shareholders is not strong.
For investors who invest in a company, dividends are one of two sources of income, along with the difference from buying and selling transactions.
According to the provisions of the Enterprise Law 2020, dividends must be paid in full within 6 months from the date of the closing of the Annual General Meeting of Shareholders. The Board of Directors shall prepare a list of shareholders entitled to receive dividends, determine the dividend amount paid for each share, the payment deadline and form no later than 30 days before each dividend payment.
Decree 122/2021/ND-CP regulating administrative sanctions for violations in the field of planning and investment - one of six decrees guiding the implementation of the Enterprise Law, does not mention administrative sanctions surrounding the story related to dividends.
With the above legal provisions, shareholders can sue in court for violations. However, the complicated procedures and the time spent on litigation discourage shareholders.
Even state shareholders have to wait for dividends for many years, but at least they still have to pay interest penalties.
The remaining interest payment for late dividend payment of nearly 50 billion VND, arising between Becamex and Becamex IJC, is expected to be paid if Becamex IJC's plan to issue shares to the public to raise 1,259 billion VND is successful. Becamex IJC has paid the entire principal of dividends payable from 2011 to 2018 to Becamex (612 billion VND), but only 109 billion VND has been paid for the late interest of 257 billion VND.
Decision No. 21/2012/QD-TTg of the Prime Minister on promulgating the Regulation on management and use of the Enterprise Arrangement and Development Support Fund has helped state shareholders have more “sticks” in case the enterprise is late in paying dividends for more than 3 months, to ensure that revenue flows to the Fund. However, the above fund no longer exists after 20 years of operation. Moreover, the regulation only protects a small group of shareholders, while ignoring the rights to receive dividends of other shareholders, who are much more numerous.
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