The Securities and Exchange Commission of Pakistan (SECP) on Thursday invited public opinion on Draft Companies (Distribution of Specie Dividend) Regulations, 2013.
Companies (Distribution of Specie Dividend) Regulations, 2013 is meant to ensure protection of investors, provide enhanced transparency, and facilitate companies. SECP stated that specie dividend is a form of dividend where shares of another company, whether listed or unlisted, which are held as investment by the issuing company, are distributed among entitled shareholders of the issuing company. Distribution of shares of another company as dividend is an acceptable practice in the market which is considered beneficial to both the issuing company and its shareholders.
These draft regulations have been developed after detailed study of practices in various international jurisdictions. They broadly cover the eligibility conditions for declaration of specie dividend, the requirement to provide an independent valuation report for the securities to be distributed in case the company is unlisted, conditions for distribution of specie dividend, and the requirement to provide a detailed information memorandum to shareholders for the securities to be distributed.
In order to ensure maximum investor protection and transparency, it has been made a requirement that a company’s Articles of Association should explicitly permit the distribution of specie dividend and the company obtains the shareholders’ approval before any such distribution. Furthermore, any company may distribute specie dividend only once in two years.
Where securities of an unlisted company are distributed as specie dividend, listing of such securities shall be mandatory within a period of 90 days from the date of declaration, and for such purpose a ‘no objection certificate’ (NOC) shall be obtained from the relevant stock exchange(s) prior to declaration. In case such securities cannot be listed, the issuing company shall make these securities liquid, at the option of the shareholders.
It is expected that promulgation of these draft regulations would facilitate companies to distribute securities of other companies as specie dividend subject to disclosure requirements and sufficient conditions for ensuring protection of investors. In addition, e considering that many companies in Pakistan are closely held, the distribution of securities as specie dividend in a protected environment will help broaden investor base and depth of the market.
