CDSC is not justified to charge account maintenance
fees
The Sunday Nation
Nairobi,
22 May 2022
This week, the
Central Depository and Settlement Corporation (CDSC) – the company the
share accounts of all investors at the Nairobi Securities Exchange (NSE)
– announced its intention to introduce a new account maintenance fee of
Sh1,200 per year. Predictably, the investing community was up in arms
against this fee. Many complained that Sh1,200 was actually more than
the total dividends they earn from the shares they own.
The number of
investors at the NSE shot up in 2008 during the Safaricom Initial Public
Offering of shares. Close to one million new CDCS accounts were opened
at that time. To date, the number is slightly over 1.1 million. Thus, it
is fair to say that the majority of these accounts only have Safaricom
shares and nothing else.
Now, in the financial
year that ended on 31 March 2022, Safaricom declared total dividends
amounting to Sh1.39 per share. After deduction of 5 per cent withholding
tax, this comes Sh1.32. Therefore, to raise the Sh1,200 CDSC annual
maintenance fee, an investor must have at least 910 Safaricom shares.
The full 2022 annual
report of Safaricom is not published yet, but in 2021, there were
358,365 shareholders holding less than 1,000 shares. What this means is
that, if the Sh1,200 new CDSC maintenance fee is affected, several
hundred thousand people will be forced to dip into their pockets to
raise the money.
The question that has
not been answered by CDSC is why this fee was introduced. Is the company
facing financial difficulties that can only be solved by collecting
Sh1.32 billion annually from NSE investors? This company makes money
from commissions (0.08 per cent) charged on transactions of shares at
the exchange. I looked at its audited financial reports found some
disturbing information.
The most recent
report available in the company’s website is for the year ending on 31
December 2020. The total revenue in that period was Sh324 million from
which it made a profit (after tax) of about Sh40 million. But then it
paid its shareholders a total of Sh117.5 million; this is about three
times the net income for that year.
What is more
troubling is that the dividend was paid in two tranches: a normal one of
Sh17.5M and a special one of Sh100M. Why would a business do that: Pay
hefty dividends and then turn around to arbitrarily charge the public
additional fees?
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