Sanction-defiant Gazprom to pay $20bn in first ever interim dividend

Sanction-defiant Gazprom to pay $20bn in first ever interim dividend
Gazprom shocked investors by announcing it will pay an extremely generous interim dividend for the first time ever. / bne IntelliNews
By bne IntelliNews August 31, 2022

Russian natural gas giant Gazprom saw its shares on Moscow Exchange jump by over 30% on August 31 on the announcement that the company will pay RUB1.2 trillion ($19.6bn) as its first ever interim dividend for 1H22.

As followed closely by bne IntelliNews, Gazprom and its European gas supplies have been on the front line of Russia’s economic war with the West since the beginning of the military invasion of Ukraine.

As the fallout from Russia’s military invasion spread in 2Q22, a cascade of dividend cancellations from Russia’s largest blue chips followed, with that of gas giant Gazprom hurting local investors the most

But as the Russian economy seems to be doing much better than expected under Western sanctions, corporate profits remained resilient in 2Q22. Gazprom, in an apparent display of defiance, walked back its previous dividend withdrawal and decided to pay RUB51/share for 1H22 in its first interim payout on record.

“Management’s decision to make Gazprom’s first-ever interim dividend has caught us, and the market, by complete surprise. At RUB51/share (19% dividend yield), the dividend’s size is very significant, almost matching the cancelled 2021 dividend recommendation and easily breaking the all-time record of RUB16.6/share set in 2018,” BCS Global Markets commented. 

In BCS GM’s view, this is “easily one of the more positive shareholder events in the company’s history”.

The CFO of Gazprom, Famil Sadygov, confirmed that the payout will comply with the government-required 50% of adjusted net income under IFRS for state-owned enterprises (SOE), and that the management intends to stick to this dividend policy going forward.

This is reassuring, as Gazprom’s 2021 dividend cancellation seemed to defy the Finance Ministry’s 50% payout rule for SOEs. Together with an near-simultaneous imposition of a one-off tax levy on Gazprom, this “severely undermined investor confidence in both the dividend policy and the company’s tax regime”, BCS GM analysts remind.

Gazprom's management's plans to pay dividends could have been buoyed by record gas prices, according to Kommersant daily. In August the average gas price in Europe was 2.3-fold higher than the average for the first half of the year, promising Gazprom even higher profits. 

“Given the situation, we think the decision to pay the company’s first-ever interim dividend now, and to do with a dividend almost perfectly matching “the one that got away” on June 30, is about the best possible way management could have gone about addressing the impairment to Gazprom’s investment case,” BCS GM argues. 

However, the analysts note that as the interim dividend almost matched what could be expected from Gazprom for the entire 2022, and, keeping in mind that it still has to pay RUB1.25 trillion “special tax” on 3Q22 results, the final 2022 dividend will likely not be nearly as large as the interim payout.  

Nevertheless, Gazprom's interim payout could encourage other listed majors to pay dividends. Local investors could reinvest Gazprom's payout back into the equity market, improving its liquidity.

Notably, Gazprom shares started moving up even prior to the official announcement of the interim dividend payment, appreciating by 6% on August 30. The Bell cited unnamed sources and Telegram trading channels as claiming that this was a result of an "apparent insider trading" ahead of an anticipated jump in share price.

As followed by bne IntelliNews, prior to the military invasion of Ukraine, Russian equity market saw a massive inflow of local investors, but also the gamification of retail trading with makeshift strategies, co-ordination and unverified “inside” information ripe on Telegram channels and other social media.

Now that the foreign investors are gone from Russian equity markets and liquidity is limited, the share of domestic retail investors on Moscow Exchange has soared from 40% to over 70%. In such conditions the Russian equity market is poised to remain volatile and prone to speculation.