After the Royal Monetary Authority (RMA) froze the dividends of financial institutions (FIs) few years ago, the investors are very pessimistic about getting their dividends at all.
Kunzang Dechen, a top investor and businessman in Bhutan (who invested Nu 4.5 million in two start-up businesses) said that it has been almost four years since RMA halted the financial institutions from giving dividends to the shareholders.
“It’s really terrible. Whether they are making a profit or not, all the dividends are frozen currently. Some of us, shareholders, have taken loans to invest in the shares, and when the dividends are halted, we cannot pay our loans also. I wonder how many years it will take before we get our dividends, it doesn’t look like the financial institutions will give the dividends next year as well. The shareholders have no option but to wait. Either that or selling the shares at lower price and risk running a loss,” said Kunzang Dechen.
Another prominent investor in Bhutan, who wished to remain anonymous, said, “All these companies, especially financial institutions and stock market, they did not declare their dividends in any form to the shareholders for the last three to four years. This has adversely affected our loan repayment. While the interest and everything else have piled up, our income from the dividends haven’t come in yet.”
The investor continued, “This has not only affected the shareholders, but also the share market and share prices as a whole. In Bhutan, all the shares are being traded at much lower value compared to the international levels. If I give an example, the BNB shares are being traded at 1.5 times its book value. Whereas, HDFC bank in India is selling at five times the book value. And if you look at Apple in the US, they are selling at 19 times their book value and in their book value, they have intangible assets like brands etc. While in Bhutan, the book value is the same as asset value of the company.”
The investor added that it is likely the dividends will not be given this year also.
“We are not getting anything. Numerous people have borrowed money to invest in shares of companies, so this is affecting the repayment of loans. And because these kinds of things are happening, the share values are sinking. If I recall correctly, three years ago the BNB shares were selling at Nu 37 and it was touching up to Nu 40, but today, even after the banks have grown considerably over the years, share values have sunk down (currently it is about Nu 32.8). And when the share values goes down, your market capitalization of the company goes down.”
The investor further said when such things happen, the people who understand the dynamics in the stock and the company they are invested in, they know how things happen. But the general public who invest in the companies, their sentiments are affected and that’s how the value drops.
“When we have no income to maintain our cash flow, we have no choice but to sell our shares,” he said.
This is a contrast to the manufacturing sector led by Ferro Alloy companies that have been declaring big dividends for its shareholders.
If the RMA does not allow Financial Institutions to declare dividends this year too then large numbers of investors are expected to dump FI stocks with share prices further falling.