IPO documents may have to state dividend policy

The Securities and Exchange Board of India ( Sebi) might compel disclosure of a companys dividend policy in an initial public offering ( IPO) prospectus.

“Companies could be asked to state their dividend policy upfront in the draft prospectus.

This would provide clarity on the company’s philosophy, in terms of repaying shareholders,” said a source.

Another source adds that the entire InterGlobe Aviation episode has not escaped regulator attention and Sebi’s move appears to be a result of this. The airline operator paid a heavy dividend to its promoters just ahead of its IPO, rendering its net worth negative.

The move had drawn criticism from analysts.

Currently, the regulator is engaged in discussion with market participants on proposed dividend disclosure norms and the format. Before forming any regulation, Sebi will issue a discussion paper.

Surces add that Sebi could ask companies to declare a minimum dividend payment as a percentage of its earnings.

“A shareholder has the right to know that if a company is not paying out dividend, what it company intends to do with their cash," said Amit Tandon, founder, IiAS, a proxy advisory firm. Declaring a dividend policy brings needed clarity to shareholders and injects discipline on companies, he said.

The markets regulator is also working on a framework on a dividend policy for listed companies, something termed overly micro management by some. “ I do not believe Sebi is micro managing. If at all, they are micro managing in favor of corporates and not going far enough. In fact, companies should take shareholder approval to retain cash; after all, the money belongs to the shareholders,” said Tandon.

Some experts believe it is critical to generate a cash pile as a war chest against difficult market conditions or for potential acquisitions.

At present, dividend policy comes under the Companies Act and Sebi has no specific guideline on payout.

However, it can step in if acompany had failed to pay dividend it had promised to shareholders.

Under the Companies Act of 2013, a company is required to pay out dividends from profit arrived at after depreciation. In the past, the markets regulator has introduced several tweaks to the IPO disclosure requirements. One such change includes stating the record of investment banks handling the IPO. The revised offer document has a section on the post- listing performance of an IPO, handled by investment banks.

SEBI LENS ON DIVIDEND

• Could be asked to declare minimum dividend payment as percentage of earnings.
• It’s a fallout of IndiGo where company made dividend payment before the IPO.
• The Companies Act governs dividend policy of firms and Sebi can step in, if company doesnt make payments as promised.

Business Standard, New Delhi, 6th Nov. 2015