Dividends to be broken down by classes

Dividend payout recommendations to state-owned companies will be amended
State-owned joint-stock companies may soon be given new dividend payout recommendations. While the same guidelines currently apply to all such companies, the new approaches, at the suggestion of experts, will differ depending on the companies’ dividend potential. However, the participants of the meeting at Russia's Federal Agency for State Property Management (Rosimushchestvo) could not agree on specifying a fixed dividend payout ratio in the document (paying 50% of the net profit is currently recommended).
The Government of Russia may revise its approaches to dividend policies at companies in which it owns stakes. As Kommersant found out, this issue was discussed on Tuesday at a joint meeting of two committees of Rosimushchestvo’s Expert Advisory Board: the Major Companies Committee and the Corporate Governance Committee. A decision was made to draft proposals for amending Rosimushchestvo’s Guidelines for the development of dividend policies at state-owned joint-stock companies within three months.
The current version of the recommendations was published in December 2014. A one-size-fits-all approach to recommendations is used for all the 900 companies in which the Government holds stakes. Now it is proposed that companies be divided into three groups, with separate guidelines applying to each group. “Recommendations for the first group of companies included in the 91-r list with a premium Moscow Exchange listing (the largest public companies such as ALROSA, Aeroflot, VTB, Gazprom, etc.) are supposed to differ from those for companies in which the Government owns less than a controlling stake. A separate group will unite small companies earning minimal profits or being on the verge of bankruptcy,” Alexey Germanovich, Chairman of the Corporate Governance Committee at Rosimushchestvo’s Expert Advisory Board, commented (the 91-r list specifies the joint-stock companies where the Government exercises its special right to participate in corporate management).
It is intended that the third group of companies (potentially including numerous road maintenance companies, printing houses, some agricultural enterprises, etc.) will go on with the same recommendations offering them a benchmark if their profits suffice for paying any dividends at all. A separate version will be released for the second group (the so-called no-control companies). “One should bear in mind that these companies make a rather small contribution to the overall dividend flow for the budget. There are mechanisms here, anyway. For example, influence through representatives on Boards of Directors, if the stake is enough to elect them,” Alexander Shevchuk, Executive Director, Association of Institutional Investors, notes.
For the first tier, it was proposed to provide for the minimum recommended dividend payout ratio of 50% of the net profit in the document. No agreement has been reached on the matter yet, one of the meeting participants noted. “Yet this instruction minimizes the debate arising for the third year in a row just before the Government issues decrees setting the level of dividend payments. It also teaches the culture of such payments,” the source said to Kommersant. According to Mr. Shevchuk’s statement referring to estimates made by the Association of Institutional Investors in April 2017, the publicly listed companies on the 91-r list were able to pay at least 50% of their IFRS net profits in dividends without detriment to the cash flow and a notable leverage increase. As past practice shows, however, many will not accept such estimates. In particular, Gazprom, United Grain Company and several other state-owned issuers have repeatedly stated they were not in a position to pay dividends to the extent set by the Government.
The draft amendments will be developed in coordination with Moscow Exchange, as stated by Mr. Germanovich and confirmed by the press service of the marketplace. Now the need for a company to have a dividend policy approved by the Board of Directors is included in the listing rules, but no rigid requirements have so far been imposed. “What most frequently irritates investors about dividend policies is the absence of a clearly defined payout ratio. For example, the dividend policy recently adopted by OGK-2 sets a range of zero to 100%. However, most of the issuers and almost all state-owned companies offer indicative payout targets,” Alexander Golovtsov, Head of analytical research at URALSIB Asset Management, points out. According to Alexander Branis, Chief Executive of Prosperity Capital Management, a number of companies may pursue overly conservative policies preferring to use resources for repaying all their debts rather than paying dividends, even though it is not impossible to pay dividends as recommended leaving debt liabilities on the books. “Or, as exemplified by the Gazprom case, we may see that the company fails to meet the requirement to pay half of the profit in dividends to shareholders, while spending ineffectively,” he says. Moscow Exchange expects that compliance with its recommendations “will enhance corporate governance of issuers, improve the transparency and investment appeal of the Russian stock market.”
Maria Sarycheva
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