yes quite common - many major companies borrow to pay dividends,...

yes quite common - many major companies borrow to pay dividends, however I think maybe you are missing the point - I clearly am not explaining it well!

Retained earnings are not cash. A company makes a profit each year, pays tax on it pays a dividend and the balance of those earnings are retained from year. What Morningstar is saying is that it doesn't matter how much cash it can get its hands on, it can't frank more than what it is the retained earning account. So it can pay out 67c as a dividend if it likes, but only a small amount of that can be franked and it is limited by the retained earnings account which on 31 March stood at a measly 34m, not by what is in the franking account. Also it has to be agreed to by the ATO.

I really would like to see a large divvy with franking attached, but it makes sense that the ATO limits it to the retained earnings.