Lessons from the Amtex saga

Shareholders of Amtex Limited must be having sleepless nights these days. The firms stock price has more than halved in the month to-date - losing 26 percent of its value since its dividend saga began on October 15 - and there is no telling when the slide will come to an end.
For those unaware of the sequence of events that this otherwise little-known textile firm underwent, here is a quick backgrounder.
Following its listing at KSE in April this year, the firm had its debt rescheduled with the Bank of Punjab in May, where both parties reached an implied understanding, according to Amtexs CFO Zeeshan Abid, that in case of any dividend payout, the companys directors, CEO, their spouses and associates would be excluded.
And so, when Amtexs BoD recommended a 30 percent cash dividend on August 25, it excluded the sponsors from the payout.
Despite this, however, the Bank of Punjab objected to the payout, saying that Amtex needed to get an NOC before it doled out the dividend, owing to which the shareholders disapproved the payout in its AGM on October 15. But, by then Amtexs stock price had already been adjusted for the divided, leaving shareholders perplexed.
Now, the KSE has advised the firm to restore the dividend in line with good corporate practices, though under the Companies Ordinance 1984, Amtex isn under any legal obligation to do so. The law clearly states that dividend is deemed payable only if the shareholders approve of it in the AGM.
Still, the companys board is meeting on October 27 to assess the impact of disapproval and decide the future course of action. That, according to sources, might include the possibility of a 30 percent bonus, instead of the 30 percent cash dividend.
"We have the requisite free reserves to give stock dividend to shareholders other than sponsor shareholders," one Amtex employee told BR Research. "But thats just one possibility," he clarified.
After having adjusted the stock price for dividend, how will the KSE adjust the price in case of a bonus issue, is a matter that still needs to be decided; and so, the best thing for shareholders to do, is wait.
"Its a unique situation," says Asif Mahmood, Secretary of the Institute of Corporate Secretaries of Pakistan, a body that aims to develop and regulate the profession of company secretaries in the country.
Keeping Amtexs issue aside, this uniqueness highlights the ambiguity of the laws governing securities exchange. When a companys directors recommend a payout (which must be approved by shareholders), they also decide on the date of Book Closure to prepare the list of their shareholders.
The anomaly is that at the bourse, a stock is usually adjusted for dividend/rights issue on the first day of Book Closure i.e. before the AGM even approves of the dividend/rights in question. One could argue that AGM should be held before the Book Closure (i.e. before the stock price is adjusted), but that would raise the question of who should attend the AGM.
When asked how to deal with this legal glitch, Haroon Askari, KSEs General Manager Operations said his immediate concern is to resolve the issue at hand. "Such situations arise once in a blue moon," Askari said, while referring to Amtexs case.
Well, its once-in-a-blue-moon situation because AGMs in Pakistan are usually just a formality. Once the directors of any company, who mostly represent the majority shareholders, approve of the accounts and payouts, the AGM does nothing but agree to it.
"AGMs in Pakistan usually lack the efficacy, they ought to have", asserts Mahmood. While the code of corporate governance requires that minority shareholders should have a representation on the board of directors, it is not mandatory - unlike the practises internationally.
"There was a time when the directors could silence the minority voices of dissent by gifts and benefits such as calendar, diaries or suit clothing," says Mahmood. "Then the SECP started checking it and passed a law against such practices...yet these practices still exist," he added.
These circumstances call for a change, where the SECP must lead from the front. As for the legal anomaly highlighted above, the SECP and the KSE must sit down to resolve the matter so that such a situation doesn arise again, even if it happens once in a blue moon.
Perhaps, as Mahmood says, they can go for two book closures; one for compiling the list of shareholders who would attend the AGM, and the other for dividend payout.