Companies retain dividends as reserve against crisis
Shareholders of Rio de Janeiro power utility Light expected to receive this year R$315 million in dividends for 2019, corresponding to the mandatory minimum set in law and in the company's bylaws. Yet the company will not disburse this money for now. In the last week of March, Light's management and fiscal council decided to hold on to the minimum mandatory dividend in order to preserve the financial health of the company amid the coronavirus pandemic.
It is not a common measure, but in times of pandemic it became a matter of survival.
At least 14 companies have already announced reduction or postponement of payment of interest on equity and dividends because of the health crisis. The matter gained political undertones in Europe and the US, where several companies have announced the suspension of payments.
In Brazil, large companies like Lojas Renner and Petrobras cut the payout by half or postponed the payment to the end of year.
In the case of banks, traditionally good dividend payers, the National Monetary Council (CMN) forbade last week the distribution above the minimum. The justification is to let banks concentrate on lending to enable the maintenance of economic activity.
Non-financial companies were not object of similar imposition. On the contrary, provisional measure (MP) 931, signed last week to push back the deadline for general shareholders' meetings and publication of financial statements, leaves the decision of payment to shareholders to the management, without need of deliberation in meeting - a proposal advocated by the association of public companies, Abrasca.
The MP and the deliberation of the Securities and Exchange Commission of Brazil (CVM) that followed it gave, lawyers say, extra incentive for companies that were considering postponing or retaining the payout to shareholders.
By extending deadlines for meetings and earnings reports, the texts removed the company's obligation of deliberating on the minimum dividend and 2019 profit retentions or payment of additional dividends at this moment, says João Ricardo de Azevedo Ribeiro, partner of corporate law at Mattos Filho.
Based on the MP, Unipar Carbocloro, which operates in the chlorine-soda sector, announced last week R$41.2 million in dividends to be paid on April 22. Lawyers say the MP article protects shareholders, but the moment demands prudence from managers when spending money.
BMA Advogados partner Luiz Antonio Campos says companies more susceptible to the...
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