Minorities want more dividends from state-owned companies


The Government of Russia has not yet finalized the general policy of collecting dividends from state-owned companies, but encourages companies to “pay dividends to the maximum extent,” first Deputy Prime Minister Igor Shuvalov said yesterday. Meanwhile, the Association of Institutional Investors approached him with the idea to keep the minimum dividend payout ratio at government-owned companies at 50% increasing it to 75% for certain companies. This move, according to the Association, would make Russia the leader in the dividend yield among emerging markets, but the Russian White House has not yet given serious thought to this idea.
The Association of Institutional Investors (API) suggests that the Government should increase requirements for dividends at state-owned companies, as follows from the letter (a copy of which is available at Kommersant) it sent to Russia’s First Deputy Prime Minister Igor Shuvalov. According to investors, the “reasonable and justified” dividend payout ratio is at least 50% of the net IFRS profit, with an increase to 75% and higher for some companies. As stated in the letter, this concerns companies where the disposable cash flow net of actual capital expenses almost entirely covers the annual profit for the year. In particular, the coverage ratio was 77% for ALROSA, 140% for Aeroflot, 98% for Rostelecom, 85% for Rosneft in 2016.
Investors are also eager to deepen the Boards of Directors’ involvement in the development of instructions, resulting in more transparent policies. “Our point was to demonstrate that a minimum of 50% is a realistic expectation and that for some companies, the percentage may be still higher,” API CEO Alexander Shevchuk commented. The proposed approach would strengthen Russia’s position as the leader among emerging markets in terms of dividend yield and attract investors, the API notes in the letter. Russia currently ranks second in terms of dividend yield after the Czech Republic, according to Renaissance Capital’s April report.
According to minority shareholders’ estimates, the financial standing of state-owned enterprises is sound enough to increase the dividend payout ratio to three-quarters from half of their profits.
The size of dividends state-owned companies should pay remains a matter of debate in the Russian White House. In February, the Ministry of Finance submitted a draft decree proposing the payment of at least 50% to the Government, even though a milder requirement was approved at a meeting with Igor Shuvalov in December. As Igor Shuvalov noted yesterday in relation to dividends, “no one-size-fits-all solution has been found so far, companies are encouraged to pay dividends to the maximum extent.” Now is the time when dividends can reach 50% but should be below that at some companies, he said adding that the latter would require a good reason and a non-simple decision-making procedure, he said.
What spurs the debate over dividends is that the Government’s representatives on the Boards of Directors of state-owned companies need to have received voting instructions agreed upon with competent bodies from Rosimushchestvo by May 1. The required dividend payout ratio was 25% from 2012 to 2016 when the Ministry of Finance formalized the requirement to pay 50% of state-owned companies’ profits to the budget – which several companies still failed to comply with. For example, Rosneft earmarked 35% of its net profit earned in 2015 for dividends and intends to maintain this ratio.
Dividends from state-owned enterprises are factored in three-year fiscal revenues and provided for by the law. Earlier, the Government made clear that it would inform state-owned companies of the Treasury’s total requirement and discuss options for distributing this fixed amount among them (see the Kommersant issue on March 30). According to Kommersant, in March, Rosimushchestvo sent state-owned companies a letter proposing to limit the dividend payout ratio to 50% (according to IFRS or RAS statements, depending on the companies’ respective dividend policies). Yesterday, Sovcomflot recommended paying 50% of the IFRS net profit.
A source in the Russian White House told Kommersant that the initiative of setting the dividend payout ratio equal to 75% had not been yet given serious thought. The Ministry of Economic Devepment told Kommersant that the API’s letter was being considered. Aeroflot stated that it had not received proposals from the API, while ALROSA did not return Kommersant’s call for comment. According to Rostelecom’s comment, its dividend policy already provides for the payment of 75% of its free cash flow (FCF); in 2016, the telco paid 114% of its IFRS net profit in dividends.
Sofia Okun, Dmitry Kozlov, Elizaveta Kuznetsova


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