Highlight A flood of dividends

Highlight A flood of dividends
Business & Markets 2013
Written by Esther Lee of theedgemalaysia.com
Friday, 30 August 2013 08:52

KUALA LUMPUR: Investors are in for a treat with dividends galore in the current corporate results season. Companies appear to be scrambling to hive off their section 108 tax credit balances which will expire on Dec 31.

“Companies that wish to utilise their section 108 tax credit balances would have to pay out by Dec 31 this year, not just declare dividends. It could explain why many corporations are declaring dividends now,” said a tax consulant.

Malaysia is currently heading towards the end of its six-year transitional period from an imputation system of declaring dividends to a single-tier system.

Genting group seems to be one. Yesterday, GENTING BHD [], which is seldom generous with dividends, franked a special interim cash dividend of 50 sen per share. The gaming group also proposed a restricted issue of warrants, an option for shareholders to reinvest the dividends into Genting.

Its PLANTATION [] arm, Genting Plantations Bhd also followed suit, declaring a special interim dividend of 44 sen (less 25% tax) and a non-renounceable restricted issue of 151.76 million new warrants at an issue price of RM1.65. Its casino operator, Genting Malaysia Bhd, has also raised its interim dividend to 4.3 sen (less 25% tax) for the second quarter ended June 30, from 3.8 sen in the previous corresponding quarter.

Genting group’s announcements have caught many by surprise.

TAN CHONG MOTOR HOLDINGS BHD [] yesterday declared a special dividend of 18% of net profit on top of a 12% interim dividend for the 2013 financial year ending Dec 31 (FY13).

And HONG LEONG BANK BHD [] proposed a final dividend of 30 sen per share, bringing the total dividend payable for the year to a record high of 45 sen per share. In fact, the banking group’s dividend payout ratio increased to 42.5% for FY13 ended June 30 from 36.5% a year earlier.

The imputation system, in which shareholders are taxed on gross dividends received, would entitle shareholders to claim section 110 set off against tax payable. This means that a company receiving franked dividends is essentially reducing its holding cost — interest on loans — attributable to financing the investment.

Companies will not reap such benefits under a single-tier system as the tax paid by the company issuing the dividend is deemed to be the final tax. Under this scenario, dividends are tax exempt in the hands of shareholders, effectively removing the set off available under a franked system.

Genting’s proposed restricted warrants entail a non-renounceable issuance of new warrants on the basis of one warrant for every four existing shares held. Genting has set the issue price of the warrant at RM1.50 each while the exercise price is determined at RM7.96 per share.

According to analysts, Genting’s management told a conference call that the rationale of the issuance of warrants is to raise fresh funds for the future in view of the fact that the group itself does not own any cash generating assets. Its gaming assets are housed in two subsidiaries — Genting Malaysia and Genting Singapore Ltd.

The special dividend of 37.5 sen (net) per share would be enough for shareholders to subscribe to the warrant on the basis of one warrant for four shares held.

“Furthermore, as the price of a warrant is lower than the share price, this gives entitled shareholders the opportunity to hold a larger number of warrants than the number of shares the entitled shareholders would have obtained under a dividend reinvestment scheme involving shares,” Genting said in the announcement to Bursa Malaysia.


This article first appeared in The Edge Financial Daily, on August 30, 2013.