Published March 4, 2009

Scrip dividend for Midas, Noble

While analysts have reservations about scheme, more firms are expected to join

By JOYCE HOOI

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MIDAS Holdings and Noble Group have obtained in-principle approval for the scrip dividend scheme, making them the first two companies to take advantage of its increased flexibility. And analysts expect more companies to jump on the bandwagon.

'It's a cop-out. Issuing more shares is just a way to hide the fact that cash flow isn't so good now.' - an analyst, who declined to be named

'The trend to conserve cash has begun, with firms starting to cut back on dividends. Even with cash-rich companies, I will not be surprised if more of them adopt scrip dividend schemes, especially SMEs,' said an analyst with a local broking house.

He also said that whether enough shareholders respond positively to make a difference to issuers' working capital and cash reserves remains to be seen, pointing out the similarities between the scheme and bonus issues.

'As an investor, I would probably be disappointed,' he said. 'Like a bonus issue, if everyone else gets additional shares, the share price will adjust downwards accordingly.'

The Singapore Exchange (SGX) has scrapped the need to seek shareholders' approval to join the scheme, as long as shareholders get the option of having their dividends in cash.

According to exchange regulations, the price of new shares cannot be at a discount of more than 10 per cent to the market price.

Commodities supply chain company Noble Group said last Thursday that it had received in-principle approval for the listing and quotation of new ordinary shares of HK$0.25 each in its capital.

Yesterday, Midas Holdings followed suit, announcing its adoption of the scrip dividend scheme, with the type of dividend affected to be confirmed at a later date.

To sweeten the deal, Midas and Noble have obtained waivers from the exchange that allow shareholders to opt for a mix of cash and shares under the scheme, instead of having to forgo the entire amount of cash dividend for shares and ending up with odd lots that will be harder to sell.

While both firms have touted the flexibility offered to shareholders and the strengthening of their working capital as perks of the scheme, analysts have reservations about the scrip dividend scheme in general.

'It's a bit of a cop-out. Issuing more shares is just a way to hide the fact that cash flow isn't as good as it should be,' said one analyst, who declined to be named.