Polish treasury minister warns KGHM of another big payout in 2013

By bne IntelliNews September 7, 2012

Tim Gosling in Prague -

Continuing its drive to squeeze as much revenue as possible from state-controlled companies to help power its ambitious fiscal consolidation plans, Warsaw is to push copper mining giant KGHM to a dividend payout significantly above management recommendations for a second year in 2013, the Polish treasury minister said on September 6.

KGHM CEO Herbert Wirth told Reuters on September 5 that the company plans next year's payout at around 30% of 2012 profit. "We think that it's better to use the resources for growth and eventual acquisitions," he said.

He got short shrift from Treasury Minister Mikolaj Budzanowski however, who, according to PAP, stated frankly the following day: "The dividend will be higher than 30%, as it needs to be underlined that not all investments or investment plans have to be finalised here and now, or next year." KGHM expects to earn PLN3.8bn (€913m) this year.

"The average dividend level (from state companies) will be above 63%," Budzanowski added. That follows his announcement last week that Warsaw intends to raise the pressure for higher dividends even further next year. "We are changing our projection" of expected budget revenue from state-owned shareholding dividends in 2013, Budzanowski said in an interview with broadcaster TVN CNBC on August 29. To that end, he said that the government will be reviewing capital expenditure plans to make sure only the most strategic investments move ahead.

The treasury, which controls KGHM with a 32% stake, in June pushed through a dividend payout worth more than 50% of 2011's record profit, again in the face of a 30% recommendation from management. That netted the government PLN1.8bn. However, the copper miner was not alone. Throughout the summer, Warsaw used similar strong-arm tactics to lever cash out of several Polish giants, including PGE; PZU; WSE; and Enea, even while financial regulator KNF strictly policed limits it had demanded on payouts at the country's foreign owned banks.

Overall, in 2012, the state-controlled companies listed on the Warsaw Stock Exchange paid out on average dividend equal to 55% of 2011 net profit, Budzanowski said. Overall, Poland saw revenue of PLN8.15bn from dividend payouts this year. Warsaw is facing ever greater challenges to its fiscal consolidation targets as the economy slows, and is also struggling to raise planned revenues from a PLN15bn privatization programme for 2012-13.

Budzanowski has proved a regular thorn in Wirth's side since he took over at the treasury at the turn of the year. Practically his first move was to block a planned PLN3bn share buyback and replace half of the KGHM board. That was quickly followed by an instruction delaying the acquisition of Canadian copper miner Quadra. When the green light was quickly given, speculation that the deal, which many analysts suggested was overpriced at CAD2.87bn (€2.2bn), could be scrapped was replaced by suggestions that the move was merely designed to show management at state-controlled companies who is boss. Several chief executives of state controlled companies have left so far during the treasury minister's short reign.

Wirth, however, continues to regularly speak of expanding KGHM's acquisition programme, but the latest move on dividends by the treasury looks likely to further cap his ambition to build overseas assets. The miner has already been heavily hit under the government's drive to quash the budget deficit and reduce state debt. It is practically the only target of a newly introduced mining tax, through which it is expected to contribute as much as PLN1.8bn per year to state coffers.

The company is also being pushed to invest huge funds in Warsaw's drive to develop greater energy independence through development of the country's shale gas reserves and building new generating capacity. While investment plans are likely to pullback, Budzanowski explained in late August, funding for key projects - in other words in energy - will be preserved.

Speaking in June, in the wake of the 2012 dividend decision, Wirth's disappointment was clear as he told reporters: "Despite the fact the dividend level might be higher than the management proposed, I think that the investments in our core business will remain intact." However, the CEO added that the company hopes to make further acquisitions to add to the Quadra purchase.

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