Page 13 - FSUOGM Week 25 2021

FSUOGM POLICY FSUOGM

Russian govt tweaks 50% dividend

payout rule for state companies

RUSSIA RUSSIA'S Prime Minister Mikhail Mishustin Oil, as well as a potential project to replace steam
signed a new order on dividend payments for turbines with gas turbines.
Russia's Prime Minister state companies, which brings clarifications to Sova Capital analysts believe that the com-
Mikhail Mishustin adjusted net income calculations for paying at pany could increase its dividend payout to 50%
signed a new order on least 50% of IFRS net profit, Izvestia reports. if InterRAO is the only developer in building
dividend payments for This was expected, as in 2020 the Finance Vostok Oil’s infrastructure and does not have
state companies, which Ministry reiterated that it would continue to to take heavy capex on its balance sheet. Should
brings clarifications to maintain strict dividend discipline for state- the payout ratio increase, InterRAO's dividend
adjusted net income owned enterprises (SOEs), keeping the 50% of yield forecast for 2021 could double from 3.7%
calculations for paying IFRS net profit rule and switching to adjusted net to 7.4%.
at least 50% of IFRS profit as the basis of the calculation. Hydropower holding RusHydro currently
net profit. As followed by bne IntelliNews, in 2019 the pays out 50% of unadjusted IFRS net income,
ministry succeeded in forcing the 50% payout and previously already mitigated the impact of
ratio on almost all the country's largest corpo- potential one-offs by introducing a dividend
rations, such as Rosneft, Transneft, state-con- floor of the average dividend payout for the pre-
trolled banks Sberbank and VTB, and others. vious three years. Sova Capital expects RusHy-
The new changes to the rule touch upon cor- dro's dividend yield to rise from 6.3% in 2020
recting for primary paper gains and losses, as to 8.9% in 2021, mainly thanks to an impair-
well as for the changes in the fair value of fixed ment-free 2021.
assets and on foreign currency gains and losses. As for Russian Grids (Rosseti), its "dividend
Although this has not been confirmed, BCS solutions are not transparent, and the company’s
Global Markets analysts believe that the new precise dividend calculation has never been dis-
rules would likely affect Russia's largest oil pro- closed," Sova writes, reminding that the official
ducer Rosneft more than other Russian oil & gas dividend policy is to calculate the first 50% of
companies. adjusted IFRS and RAS net income and to pay
"Rosneft currently pays 50% of book net out the larger of the two.
income as reported under its IFRS accounts, but "We think the probability that Rosseti will
makes no adjustments for non-cash items such pay in line with a recent government decree is
as FX gains and losses," BCS GM reminds, not- very low, as the parent company’s actual cash
ing that this causes significant volatility in Ros- proceeds for 2020 (dividend flows from subsid-
neft’s reported net income each year, removing iaries) accounted for 48% of consolidated IFRS
$4.4bn from net income in 2020, for example. net income in 2020," the analysts believe.
BCS GM see the news as positive for Rosneft's The grid operator also unexpectedly lowered
shares and maintain a Buy rating on the name. its dividends for 2020 by 72%, with a current DY
Sova Capital on June 17 note that Russian oil of only 1.8%. Moreover, Rosseti and the Finance
pipeline operator Transneft could have a slightly Ministry have already confirmed that it will
positive effect on dividends from new rules, as it have a special dividend calculation, according
will have to count in the contribution of associ- to Interfax.
ates to dividends. The subsidiary of Rosseti, the Federal Grid
Russia's gas giant Gazprom has already been Company (FSK), dividend policy also stipulates
adjusting for FX, impairments and profit from calculating 50% of adjusted IFRS and RAS net
associates. However, while the companies of its income and paying out the larger of the two. FSK
utility arm Gazprom Energoholding are already has an effective payout ratio that is below 50%,
paying out at least 50% of IFRS net income, it in particular 35% of IFRS net income for 2020.
remains "somewhat unclear... what impact asso- "The company is preparing to increase its
ciates will have on Gazprom's total dividends capex for BAM and Transsib, and it could protect
going forward given the vague language in the its current conservative dividend policy," Sova
new order," Sova analysts note. Capital believes. Assuming a dividend payout
Russian utility major InterRAO currently has for 2021 of 50% of IFRS net income that does
to pay out no less than 25% of IFRS net income. not include the depreciation adjustment, the
"However, the government indirectly controls expected dividend yield for 2021 could increase
InterRAO via Rosneftegaz (28%), Federal Grid from the anticipated 7.1% to 13.1%, the analysts
Company (9%) and treasury stock (30%)," Sova estimate.
notes, which could give InterRAO’s dividend Sova Capital maintained Buy ratings on
policy more flexibility compared to entities shares of Gazprom, Transneft, InterRAO,
directly controlled by the state. RusHydro and FSK, a Hold rating on RosSeti
At the same time, Inter RAO is also preparing ordinary and a Sell rating on Rosseti's preferred
to execute large investment projects for Vostok shares. ™

Week 25 23•June•2021 www. NEWSBASE .com P13