But leaves room for more questions

Shares: Not considering the issue of conflict of interest, the Bhutan Football Federation’s (BFF) investment of Nu 30M in Zimdra Food Private Limited is legitimate.

Following the Kuensel’s story on the investment, many on the social media questioned legality of such investments.

“It is just like one individual borrowing money from another,” a financial expert said.

However, BFF did not invest in Zimdra bonds, as speculated by many. It was ascertained that the federation was not among the list of seven subscribers of Nu 500M bond, that Zimdra Food recently issued.

As clarified by Ugen Tshechup Dorji, the federation has invested in shares.

Going by the Companies Act of the Kingdom, the board has the power to issue debentures, borrow money and to lend. While bonds are secure debt instrument with guaranteed return, shares entitle the holder to a fixed dividend and by virtue of being a shareholder also inherit the companies’ liabilities.

Officials from Royal Securities Exchange Ltd. also said the investment was legal. But since Zimdra is a private limited company, it was important to study how secure is the investment unlike the public listed companies, which are secured.

Is the BFF’s return of 10 percent annually on the investment guaranteed?

The Companies Act mentions that, “no dividend shall be paid by a company for any financial year, except out of the distributable profits of the company…”

If the company’s financial performance was any indication, Zimdra Food Private Limited is not a profit making company, at least as of now.

In 2012, it suffered a loss of Nu 50.12M and it more than doubled to Nu 161M the following year. Last year it reflected a loss of Nu 198.7M.

The Act states that the company can issue “preferential shares” to receive dividends on a predetermined basis paid from distributable profits.

A financial expert said that if a company is struggling and has to suspend its dividend, preferred shareholders have the right to receive payment in arrears before the dividend can be resumed for common shareholders.

But in case of bankruptcy the first priority, will be to redeem the bond subscribers and then the preferential shareholders. “The bottom line is that the investment is not as secure as bond but more secure than ordinary shares,” he said.

The Companies Bill, 2014, which is still being studied and presented to the Parliament twice, sheds more light on payment of dividend in arrears.

The Bill states that a right for dividends, which have not been paid in any one year due to a lack of distributable profits, should be paid in one or more subsequent years.

“Preference shares shall be subject to redemption, at the instigation of the company or the shareholder, not more than 10 years after their issue according to terms defined in the company’s Articles or the shareholders’ resolution establishing the class of shares,” it states.

This means neither BFF nor other institutions that was allotted preference share cannot redeem their shares anytime they want, as claimed by the federation’s general secretary and the company’s chairman earlier.

However, in his letter, Ugen Tshechup Dorji stated “I overlooked shareholder interests for the most favourable situation for BFF.”

It is indeed beneficial for BFF, which is on the gaining side but the picture is not as rosy as it was painted.

BFF officials consider 10 percent dividend “best deal.” It is of course providing better yield than interest banks provide but figures from the stock exchange reveal that some public listed companies over the years have declared dividends as high as 100 percent.

Similar offers were also made to Draktsang and Gangtey Shedra, who are also shareholders of Zimdra Food Private Limited.

Tshering Dorji