Shares in Gazprom plunged as Russia’s gas export monopoly said it was seeking an exemption from a requirement that all state-controlled companies pay increased dividends.
Gazprom’s stock dropped by 5.2% to RUB159.65 by 3.35pm on May 4 after local media reported the company is seeking a waiver from a new rule on dividends because of a need to preserve cash to help bail out the state development bank. The broader Miex Index fell by 2.5%, while the dollar-denominated RTS sank by 4.1%.
The Kremlin is considering hiking dividends paid by Gazprom and other state-controlled companies to 50% of profits as part of a push to plug a gaping hole in its budget. Such a move to double the pay-out made by Gazprom under International Financial Reporting Standards (IFRS) has sent the stock prices surging this year. But foreign portfolio managers have been spun this “investor friendly” story before and were rightly wary to pile in.
The move, which could rake in an additional RUB110bn, was proposed by the Federal Property Management Agency late last year and also has the backing of Economy Minister Alexei Ulyukayev. There will be no exceptions to the rule, according to Finance Minister Anton Siluanov.
Gazprom, which is run by Alexei Miller, obviously thinks otherwise. The state has been considering a rescue plan for development bank VEB, which was hit with US and European Union sanctions following Russia’s annexation of Crimea from Ukraine in 2014. One option under consideration is having Gazprom purchase 2.7% of its own shares from VEB.
The Kremlin may now support a proposal to let Gazprom pay out 50% of profit under Russian accounting standards (RAS), which could more than halve the required payout.
The finance ministry is facing a budget deficit this year of RUB2.4tn based on an average oil price of $50 a barrel. That deficit will mainly be covered by one of Russia's sovereign wealth funds, the Reserve Fund, which shrank to $50bn by March 1 from $70bn rubles in October.
The main payers, which include Gazprom, Rosneftegas, Bashneft and Alrosa, have previously reacted to the new dividend proposals with restraint. Bashneft, which was renationalised in December 2014, is “not scared” about the prospect of dividends being doubled, according to its president Alexander Korsik. The company is obliged to pay dividends worth RUB20bn for 2015, which corresponds to 46% of net profit under IFRS for 2014, he said.
Rosneft, Russia’s largest oil company, has already switched to calculating dividends under IFRS in 2014 but Gazprom and oil pipeline monopoly Transneft persist with using RAS.
Gazprom seemed previously to support the idea of paying higher dividends under IFRS in principle. “We support anything that is beneficial to our shareholders, but the discussion is more than 10 years old and there is still no decision from the state,” Igor Shatalov, deputy finance director at Gazprom, told an investor day in February.
Gazprom paid out an IFRS dividend ranging from 9-16% from 2010 to 2013. Last year, the monopoly maintained its dividend at RUB7.2 a share, which worked out as 107% of IFRS profits because of its huge loss on foreign exchange.
The finance ministry’s proposal has yet to be ratified so investors have time to get involved as the record dates fall between June and July with the bulk of the payments being made by August.
A move to double Gazprom’s dividends under IFRS was described by Citigroup analyst Ron Smith in a February 29 report as “a potential game changer". But questions remain whether it will actually happen or if it will only be a temporary fix until energy prices scrape higher.