How four PSUs are paying dividends in record time

Primer on Sebi LODR regulation 29 and 42

Four public sector undertakings — Indian Oil Corporation, Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Coal India — are paying an out-of-turn second interim dividend to help the government shore up its revenues. Most of these companies paid interim dividends less than a month ago. To ensure that the latest dividend payout takes place before the end of the fiscal year, the state-owned entities had to obtain the market regulator Securities and Exchange Board of India’s (Sebi’s) leeway on certain regulations. 

Which are the regulations on which exemption was sought? 

The state-owned entities got exemption from the applicability of regulation 29(2), regulation 42(2) and regulation 42(3) of Sebi LODR (listing obligations and disclosure requirements) Regulations, 2015. 

What are these regulations? 

Regulation 42 acts as a guideline for all listed entities on intimating record dates during the declaration of dividend, issuing bonus or rights shares, and other corporate actions such as mergers, de-mergers and stock splits. 

Regulation 42(2) says the listed entity shall give notice of at least seven working days (excluding the date of intimation and the record date) to stock exchanges of the record date, specifying the purpose. 

Regulation 42(3) says the listed entity shall recommend or declare all dividend and/or cash bonuses at least five working days (excluding the date of intimation and the record date) before the record date fixed for the purpose. 

Regulation 26 pertains to giving intimation to stock exchanges about the meeting of the board of directors for proposals such as declaring dividends and financial results. 

Regulation 29(2) says the intimation shall be given at least two working days in advance, excluding the date of intimation and date of the meeting. 

Why were these exemptions sought?

On March 22, Indian Oil, HPCL and BPCL made a stock market announcement that their board would meet the next day to declare the second interim dividend. Without the exemptions, these companies wouldn’t have been able to conduct the board meeting the next day. Further, the record date for the dividend was fixed on March 27 — a gap of just one working day. Had Regulation 42(2) been applied, the record date would have been April 3. As a result, the payout would have taken place in the next fiscal year and impacted government’s budget estimates for 2016-17.