Russian stocks are facing a serious setback after it emerged that the Kremlin may be backing out of a decree to force state-owned companies to pay dividends worth 50% of their earnings.

The government is now allegedly backing a payout worth just 25% of earnings under International Financial Reporting Standards, according to a report by Bloomberg News, citing unnamed sources.

Slava Smolyaninov, chief equity strategist at Russian broker BCS, described the policy change as “a serious headwind to government efforts to improve the Russian bottom-up case in the eyes of investors”.

“The market will take effective abandoning of plans to introduce a uniform 50% dividend payout rate from state-owned companies negatively,” Luis Saenz, head of equity & sales and trading at Russian broker BCS, told the newswire. “Lacking any key details so far, we highlight that relying on management own dividend guidance would become key as some companies may still be willing to pay out more than 25%.”

On the stock level, BCS said gas monopoly Gazprom, airline Aeroflot and the power companies RusGrids & Federal Grids are potentially the most negative affected, while Alrosa, Rostelecom and RusHydro look least affected.

Russian companies currently pay some of the highest dividends in the emerging market world and the outperformance of Russian stocks last year was partly attributed to the expectation that payouts would be even higher this year.

So far, Gazprom has been the biggest laggard and managed to ignore an order to do so in 2016 by paying out just 24% of its IFRS profits.

A move to double Gazprom’s dividends under IFRS was described by Citigroup analyst Ron Smith a year ago as “a potential game changer”. But questions remain  whether it will actually happen or it was to be a temporary fix until energy prices scraped higher.

The 2017-2019 budget that was approved at the end of 2016 assumes a 50% dividend payout from all state-owned companies, but the government has since said this is a “framework” and a final decision on who pays what will be made in April.

The investor group UCP told bne IntelliNews last year that oil pipeline monopoly Transneft purposely consolidates its profits in a subsidiary to avoid paying higher dividends and is ducking a government command for state companies to pay dividends worth 50% of earnings under IFRS.

However, Smolyaninov believes some companies may still be willing to pay out more than 25%, or even more than 50% . He suggested that diamond monopoly Alrosa, telecoms provider Rostelecom and utility RusHydro may pay investors a dividend this year in excess of at least 35%.

“The government may keep pressure for higher payouts on some companies,” he said. 

The Russian benchmark index was trading 0.22% lower at 4,834 after the news emerged on January 19.