Bumper dividends season gets underway in Russia

Bumper dividends season gets underway in Russia
By bne IntelliNews July 26, 2016

​The peak dividend season is about to open in Russia. The government's drive to force state-owned enterprises (SOE) to pay out more dividends to bolster budget revenues is having a knock-on effect to the private sector. During 2015 non-financial companies will pay out dividend worth RUB1.35 trillion ($20.5bn), an increase of 8% y/y, according to the study Analytical Credit Rating Agency (ACRA), reports Vedomosti. Since 2013, the share of net income that companies will direct on dividends has risen from 28% to 31%.

Oil and gas companies are paying the most and make 50% of all dividend payments. For 2015, the payment of oil and gas industry will increase by 15% to RUB670bn. Almost half of these payments came from state-owned behemoths Gazprom and Rosneft alone.

The government made it mandatory for state-owned companies to pay 50% or more of the profits (International Financial Reporting Standards or Russian Accounting Standards) at the end of 2015. But not all SOEs have fulfilled this requirement in the past year, according to ACRA. As more meet the new rules, dividend payments could rise another 25% to RUB465bn. 

Currently companies can still choose to pay dividends under RAS, where profits are calculated to be significantly lower than under IFRS. But next year the Ministry of Finance may oblige all state-owned companies to calculate their accounts using only IFRS, which will increase dividend payments again. If this rule had been applied in 2015, the budget would have received an extra RUB500bn of dividend payments, analysts conclude.

Another quarter of dividend payments from Russian non-financial companies at the end of 2015 comes from steelworks that have seen pay out rise by more than half since 2013 to RUB326bn.

At the end of 2015, steel companies paid out 72% of net profit to the shareholders, or 52% if Norilsk Nickel is excluded. Steelmakers are paying a lot, because, on the one hand, the industry has already passed the peak of its capital investment needs while on the other their profitability has been significantly increased by the devaluation of the ruble. ACRA estimated that steel companies will lock the dividend at the current level of RUB300bn-RUB360bn.

The top three telecom companies are also paying handsome dividends. At the end of 2015, they will pay out RUB152 trillion, or twice as much as a year earlier. But analysts expect the level of the payouts to fall after this year due to increasing costs of the new infrastructure that must be built in accordance with the new legislation passed by the government that will force them to hold massive amounts of data on call content and user activity, that comes into effect on July 1, 2018.