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CSRC releases dividend rules

By Wang Jiamei (Global Times)

08:08, May 11, 2012

Regulations issued Wednesday by the China Securities Regulatory Commission (CSRC) to improve the transparency of listed companies' payment of cash dividends will need a corresponding supervision and punishment system, experts said yesterday.

According to the CSRC regulations, listed companies are required to release information on their dividend plans, and must reveal the actual amount of dividends paid out in their periodical company reports.

Meanwhile, companies seeking to launch an initial public offering (IPO) should provide in their prospectuses details on their dividend sharing policies over the next three years. And when formulating dividend allocation policies, listed companies should solicit opinions from independent directors and smaller shareholders.

"The compulsory requirements on information disclosure aim to foster shareholders' expectations for cash dividends from listed companies, some of which rewarded their investors with nothing for years," Zhang Qi, an IPO analyst at Zero2IPO Research Center, said yesterday.

Statistics from the CSRC show that 854 companies, or 39 percent of all the mainland-listed companies, did not pay dividends to shareholders in 2010; 522 companies failed to send out cash rewards from 2008 to 2010; and 422 companies did not make any cash payments to investors during a five-year period from 2006 to 2010.

The new rules are expected to help investors make reasonable investment choices and to enable the stock market to develop more mature information disclosure mechanisms for dividend policies.

However, experts also noted that even though listed companies would be forced to publish specific plans, the regulation does not guarantee that investors will finally receive the dividends.

"In order to better safeguard investors' interests, a relevant supervision and punishment system should also be established to ensure the implementation of such dividend plans," Zhang said.

Dong Dengxin, a professor of finance at the Wuhan University of Science and Technology, told the Global Times yesterday that a company would not necessarily face any penalty or trouble for not delivering on its dividend policy, just so long as it offers a reasonable explanation in a timely manner.

It takes time for investors and regulators to judge the authenticity of the reason given for not paying a dividend, Dong said. A company may not be able to pay out to shareholders because it plans to invest in a promising expansion project, and the effects of such a plan might not be seen until several years later.

"Also, it is a company's right to decide whether to give out dividends based on their business performance and development strategy. The regulators cannot issue mandatory requirements to force them to do so," Dong explained.

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