Page 72 - bne IntelliNews Russia Country report May 2017

8.3.1 Dividends dynamics
Gazprom board of directors recommends FY16 dividend payout of 20% or dividend yield of 6.3%. The company's board of directors yesterday recommended paying RUB8.0397/share. The DPS implies a nominal 2% y/y hike, and implies a 20% payout of the reported FY16 IFRS bottom line, or a 38% payout ratio when applied to net income adjusted for FX gains (RUB453.7bn). We have not held our breath for high Gazprom dividends, and never bought into the 50% IFRS scenario given Gazprom's high capex plans, and likely negative FCF this year. Having said that, we are surprised by the market's sharp backlash yesterday that dragged Gazprom's GDRs down almost 6%. The dividend implies a 6.3% dividend yield, and given the proximity of the dividend payout (likely in August) this looks quite attractive, in our view, particularly for a stock that has never spoiled investors with high dividends. We therefore see yesterday's reaction as overdone and surprising.
Russian gas monopolist Gazprom’s profit is mostly “on paper,” president Vladimir Putin said on May 15, suggesting the company’s dividends will be a lot less than the mandatory 50% of IFRS income. “Gazprom has large profits on IFRS. But it’s on paper. There isn’t a real cash flow,” Putin said at the Belt and Road summit in Beijing. The company has previously asked for exceptions on the grounds that its large investment programme would force it to borrow to pay the compulsory dividend rate.
Transneft Minister of Energy promises RUB 60bn, a 26% payout from reported IFRS net income , if DPS for ords and prefs are identical, this implies RUB 8,449/share – or a DY of 4.9%. On Monday 22 May, Minister of Energy Alexander Novak told the media that Transneft would pay RUB 60bn in FY16 dividends and that the corresponding directive for the Board of Directors would be signed shortly. The minister’s statement does not contain sufficient detail for us to pinpoint the DPS for prefs with complete confidence. We remind investors that the company’s charter, as amended in late March, requires that prefs receive exactly 10% of net income, and ords receive not more than prefs. Applying this rule to the reported 2016 IFRS net income would have produced a DPS of RUB 14,985 for prefs. It is theoretically possible that ords could receive less than that. However, to arrive at the total RUB 60bn mentioned by Novak, the DPS for ords would be RUB 6,616/share. We find it hard to imagine that the government would agree to such discrimination against itself vis-à-vis the owners of prefs. It is more reasonable (and quite logical, in light of Gazprom’s dividend disappointment last week) to assume that the government has opted to base the dividend calculations on some version of adjusted net income. Thus, assuming that both classes of share get the same DPS, it would equal RUB 8,449, implying a rather unexciting dividend yield of 4.9%.
Rosneftegaz, the state holding company that owns Rosneft’s shares, will pay 50% of its profits in dividends , like other state-owned companies, per FinMin Sulianov. Earlier this week it emerged that Rosneftegaz was dodging dividends because it reported a “loss” in 2016 from its sale of 19.5% of Rosneft. Per Siluanov, in the case of a loss, Rosneftegaz can meet its dividend obligations by dipping into the retained earnings of previous years (which are considerable, he remarked, though no one knows the exact balance sheet).
72 RUSSIA Country Report May 2017 www.intellinews.com