Dollar crunch dampens multinationals’ mood for eye-popping dividends

Although the listed multinational companies in Bangladesh posted healthy profits in 2023, the dividend payout dropped for most of them since they struggled to repatriate funds to their foreign owners owing to the US dollar crunch.

Twelve MNCs are listed with the Dhaka Stock Exchange (DSE). Of them, nine announced dividends for the financial year that ended on December 31, with seven announcing rewards for shareholders that were lower than the previous year.

The combined profits of the multinationals rose 10 percent year-on-year to Tk 7,029 crore last year and they paid Tk 5,060 crore as dividends, representing 72 percent of the total earnings.

In 2022, the multinational companies gave out Tk 6,346 crore in dividends, which accounted for 95 percent of the profits.

The drastic decline in dividend payout comes as Bangladesh has been experiencing a US dollar crisis for the past two years owing to a fast depletion of the foreign currency reserves. In order to stop the further fall, the central bank has limited non-essential and luxury imports.

The reserves stood at $19.45 billion on Wednesday, down from $40.7 billion in August 2021, data from the BB showed. The country had reserves of $31.20 billion at the end of the fiscal year of 2022-23 and $33.4 billion in 2021-22.

The American greenback scarcity has hurt importers, students who plan to study abroad, and foreign companies that need to transfer profit shares to their owners, among others.

The lower dividend awards by the multinational companies, which are among the best firms listed in Bangladesh, prompted investors to sell off the stocks of the firms, driving down their prices and bringing about a bear run in the entire market.

Executives working for MNCs blame the lower reserves for their disappointing dividend payout.

A top official of a multinational company said the board normally does not share the factors that prompt the governing body to come up with a higher or lower dividend.

"However, I think the directors are well aware that our company facing some challenges in repatriating dividend payments to the foreign shareholders because of the US dollar shortage."

"Therefore, the directors don't want to endure any trouble that may stem from declaring higher dividends because ultimately it will be tough to transfer the funds to their accounts."

The executive said his company wanted to keep some money in the reserves owing to the challenging macroeconomic situation in Bangladesh and an overall tight liquidity scenario.

"We may need extra funds in the coming months."

Another senior official of a multinational company added the board may compensate the shareholders by announcing fatter dividends when the dollar availability returns to normalcy.

Marico Bangladesh's dividend payout ratio dropped to 61 percent in 2023 from 71 percent a year prior and 91 percent in 2021.

This fell to 30 percent for British American Tobacco Bangladesh. It was 60 percent in 2022 and 99 percent the year before.

Grameenphone distributed 51 percent of its profits as dividends in 2023, way lower than the 99 percent awarded in the previous two financial years.

Robi Axiata, LafargeHolcim Bangladesh, and Singer Bangladesh also paid out a lower dividend. On the other hand, Unilever Consumer Care and RAK Ceramics declared higher dividends.

Prof Abu Ahmed, a former chairman of the economics department at the University of Dhaka, said since a majority of the shareholders of the MNCs are based abroad, companies operating in Bangladesh had to remit the dividends in foreign currencies.

"However, repatriating funds was a challenging task in the last two years amid the dollar shortage. The lower-than-expected dividend left local investors upset."

The analyst said investors prefer MNCs because they pay higher dividends. "Now, they are disappointed, so they are selling the shares of the companies."

Yesterday, British American Tobacco shares traded at Tk 397 and Grameenphone at Tk 235, the lowest in two years in both cases, DSE data showed.

Stocks of Unilever Consumer Care, Marico, Berger Paints, and Bata Shoe also changed hands at levels that were almost at their lowest in two years.

Prof Ahmed also said MNCs might announce generous dividends in the coming years if the forex reserves situation improves. "Thus, investors should not be disappointed."

He said the reinstated earnings can be invested in treasury bonds, which are offering higher returns compared to bank deposits. "This may contribute to boosting profits in the future."

Ahmed even recommended if the forex reserves don't pick up to a much comfortable level and the US dollar crisis does not peter out in the coming years, the companies still should pay higher dividends.

"And the dividends payable to foreign shareholders can be invested in treasury bonds."