Large Dividend-Paying Multinationals Alleged of Misusing the BoE’s schemes

  • Jun 08, 2020 BST
  • Team Kalkine
Large Dividend-Paying Multinationals Alleged of Misusing the BoE’s schemes

Summary

  • The BoE had asked companies not to use borrowed funds to pay cash bonuses or dividends
  • Many of the foreign companies have announced dividend payments
  • Nearly 20 per cent of the loans were made to businesses with higher carbon emissions

The government announced different schemes to support the employees and the businesses ravaged by the deadly pandemic of Covid-19.  According to the Bank of England (BoE), a lot of businesses have used the coronavirus funding system to make dividend payments for their respective shareholders. The Bank of England had earlier notified the businesses, regarding the usage of borrowed funds. Clearly stating that the companies are not supposed to use borrowed funds to pay cash bonuses or dividends. The central bank had set up its Covid Corporate Financing Facility (CCFF) in March to ensure that money loaned through the support scheme was used by the businesses to help them survive the pandemic and to attempt to contribute towards the resurrection of UK’s economy.

CCFF is a facility under which the BoE would acquire short-term debt securities issued by eligible companies. The British government, along with the BoE, had announced several other schemes to help businesses such as Bounce Back Loans, Business Interruption Loan and several others. These schemes were designed to import monetary stimulus by lowering the yield on corporate bonds, which would lead to lesser cost of borrowings for the companies. 

However, CCFF is different from the other support schemes launched by the UK government. CCFF was specifically designed to lessen the immediate liquidity concerns for businesses. The only debt which could be purchased under CCFF is commercial papers (CPs), which is not traded on the exchange and has a short maturity, typically ranges from a day to less than a year. CPs are issued by well- established companies with a very good credit rating.  

Under CCFF, the British government and BoE joined forces to bolster the commercial paper market. The Bank of England decided to buy the commercial papers denominated in pound sterling issued by eligible companies both in the primary and secondary market. However, the businesses were supposed to fulfil the eligibility criteria. The company must fulfil two key tests. Firstly, the company should have a solid credit rating. Secondly, the company must make a material contribution to the economy of the United Kingdom.

The UK government received severe criticism from campaigners and ministers with respect to the allocation of these schemes. Nearly 20 per cent of the loans were made to businesses with higher carbon emissions. The British government was expected to implement new policies for the post-Covid era towards a greener future. Also, while there were many household names from the UK high streets, there were foreign companies through their British operations who have announced dividend payments, and have been said to have exploited the BoE’s aid and the taxpayers of the nation’s money, while distributing dividends. Let us discuss some of these businesses.

  • BASF SE (LON: 0BFA)

Germany based BASF SE is a chemical producer which caters to the needs of the manufacturing, construction, and agriculture sector. BASF SE outstanding value of CP held by the CCFF stood at £1000 million.

On a Year to Date (YTD) basis, the stock delivered a negative price return of 14.62 per cent. The company’s share prices have slumped substantially, which has eroded nearly 15 per cent of the market capitalisation. This also means that the stock has undergone significant price correction.

On 8th June 2020, while writing at 11:02 AM, before the market close, BASF SE‘s shares were marginally down by 1.16 per cent against its previous day closing price; trading at EUR 57.72. The stock's 52 weeks High and Low was EUR 71.83/EUR 39.03. The beta of the company stood at 1.20, indicating higher volatility as compared to the benchmark index. BASF SE’s market capitalisation stood at €52.75 billion.

  • Asos Plc (LON: ASC)

Asos Plc is the UK based fashion retailer with an international presence. Asos Plc’s outstanding value of CP held by the CCFF stood at £100 million. On a Year to Date (YTD) basis, the stock was marginally down by 0.39 per cent. On 8th June 2020, while writing at 11:10 AM, before the market close, Asos Plc’s shares were down by 2.36 per cent against its previous day closing price; trading at GBX 3,230. The stock's 52 weeks High and Low was GBX 3,670.00 /GBX 1,050.00. The beta of the company stood at 2.82, indicating higher volatility as compared to the benchmark index. Asos Plc’s market capitalisation stood at £ 3,300.22 million. 

  • Compass Group Plc (LON: CPG)

Footsie listed Compass Group Plc (LON: CPG) is a vending and catering service company with operations in nearly fifty nations. Compass Group Plc’s outstanding value of CP held by the CCFF stood at £600 million.

On a Year to Date (YTD) basis, the stock was substantially down by 29.80 per cent. The company’s share price has slumped drastically, which has nearly eroded 30 per cent of the market capitalisation.

On 8th June 2020, while writing at 11:16 AM, before the market close, Compass Group Plc’s shares were down by 3.37 per cent against its previous day closing price; trading at GBX 1,293.50. The stock's 52 weeks High and Low was GBX 2,138.00 /GBX 1,002.00. The beta of the company stood at 1.07, indicating higher volatility as compared to the benchmark index. Compass Group Plc’s market capitalisation stood at £ 23,832.30 million.

 

  • EasyJet Plc (LON: EZJ)

EasyJet Plc is a low-cost European airline. EasyJet Plc’s outstanding value of CP held by the CCFF stood at £600 million.

On a Year to Date (YTD) basis, the stock was substantially down by 37.68 per cent. The company’s share prices have slumped drastically, which has nearly eroded 38 per cent of the market capitalisation.

On 8th June 2020, while writing at 11:27 AM, before the market close, EasyJet Plc’s shares were up by 6.15 per cent against its previous day closing price; trading at GBX 946.00. The stock's 52 weeks High and Low was GBX 1,552.00 /GBX 475.00. The beta of the company stood at 1.82, indicating higher volatility as compared to the benchmark index. EasyJet Plc’s market capitalisation stood at £ 3,539.92 million.

FirstGroup Plc (LON: FGP)

UK based FirstGroup Plc is a transport company. FirstGroup Plc’s outstanding value of CP held by the CCFF stood at £300 million.

On a Year to Date (YTD) basis, the stock was substantially down by 37.68 per cent. The company’s share prices have slumped drastically, which has nearly eroded 38 per cent of the market capitalisation.

On 8th June 2020, while writing at 11:32 AM, before the market close, FirstGroup Plc’s shares were up by 2.82 per cent against its previous day closing price; trading at GBX 65.60. The stock's 52 weeks High and Low was GBX 137.50 /GBX 28.28. The beta of the company stood at 2.04, indicating higher volatility as compared to the benchmark index. FirstGroup Plc’s market capitalisation stood at £ 778.08 million.

 


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