Page 12 - RusRPTMay21

Putin’s address delivered less of a stimulus than we suspected based on media reports. According to Minister of Finance Anton Siluanov, the measures could cost about RUB400bn over two years (RUB270bn in 2021 and RUB130bn in 2022). The largest impact should come from one-off payments to families with children in school (RUB170bn). As for sources of funding, MinFin noted that government reserves could be used in addition to non-oil taxes and the optimization of expenditures.
Both Mr. Siluanov and his counterpart in the Ministry of Economic Development have stated that such measures would not lead to additional pressure. We believe Putin’s address did not provide additional reasons for a tighter monetary policy.
However, not all measures were announced in full, and we will be interested to see how much spending is associated with infrastructure and additional budget credits to indebted regions, whose debts exceed RUB2.4trln (out of which RUB500bn can be attributed to bank loans). Finally, the funding of social outlays and the “fine-tuning” of the tax code will be decided by 1 June.
As for stock implications, we believe Detsky Mir should be the key beneficiary of the announced support measures and chalk up a decent back-to-school season in 3Q21. The extension of the 20% cashback on domestic travel through YE21, coupled with a limited number of available international destinations, should support food spending during the vacation season (as was the case in 2020) and support Magnit and X5’s 3Q21 sales.
Overhauling aluminum plants is an important milestone for Rusal, which owns four of the plants mentioned by Putin, e.g. Bratsk, Irkutsk, Krasnoyarsk and Novokuznetsk, which together produced 70.1% of Russia’s aluminum in 2020. According to Minister of Industry and Trade Denis Manturov, the company plans to spend RUB385bn by 2027, and the government will provide guarantees for the company. We believe the modernization measures could have a limited impact on Rusal’s financials.
The story on dividends will likely touch upon the metals and mining space, which pays out generous dividends and is held by private owners. For example, Norilsk Nickel, Severstal, NLMK, Evraz and MMK should pay out more than RUB405bn this year to its major shareholders. We believe companies are likely to retain their dividend policies of paying out 100% of FCF and that the changes to the tax regime are likely to push majority owners to take a more active role in national infrastructure projects, leaving minority shareholders unaffected.
2.2 US sanctions on Russian debt: how bad could it get?
US President Joe Biden is expected to impose new sanctions on Russia in June, but just what he will do remains unclear. These could range from freezing the US assets of people close to Putin, all the way to curbing the Kremlin's ability to issue debt.
12 RUSSIA Country Report May 2021 www.intellinews.com