France urges companies to not pay dividends

PARIS, France – France stepped up on Monday, March 30, its calls for firms using state aid to keep afloat during the coronavirus crisis to not pay out dividends to shareholders this year.

“I call on all companies who are putting staff on partial unemployment, that is having their wages paid by the state, to show the greatest restraint possible in terms of paying dividends,” Finance Minister Bruno Le Maire said on BFMTV.

“Even better to set an example and not pay dividends,” he added.

“We also won’t tolerate companies buying back shares…. Share buybacks are not compatible with support from the state treasury,” said Le Maire.

Companies that make a profit usually return part of that to their shareholders in the form of a dividend.

A firm buying back its shares is another way of returning profits to shareholders.

Le Maire had already said last Friday, March 27, companies which take out a state-backed loan or delay tax payments to help them survive the coronavirus crisis would be barred from paying dividends this year.

Partial unemployment is looking to be another important mechanism to support firms as in effect the state will be paying 70% of wages for hours that employees are furloughed.

French companies have already asked to place 2.2 million workers on temporary leave, according to figures released at the weekend. (READ: Coronavirus a ‘catastrophe’ for Paris tourist industry)

A number of large French companies such as aircraft manufacturer Airbus and supermarket chain Auchan have already said they will not pay dividends this year.

In addition to coercion, firms have an important economic incentive to not pay dividends – it allows them to hold onto cash in case financing becomes difficult or expensive to obtain. – Rappler.com