Page 9 - FSUOGM Week 16

FSUOGM INVESTMENT FSUOGM
Tatneft first Russian major to scrap dividends
RUSSIA
Others like Rosneft, Gazprom and Gazprom Neft could follow suit.
RUSSIAN regional oil major Tatneft has announced that it will not pay dividends for 4Q19 due to the adverse market situation. Previ- ously, pipe producer TMK (supplying large-di- ameter pipes to oil and gas sector) also guided that it might not distribute dividends for 2019.
As followed by bne IntelliNews, high divi- dend payouts have been the backbone of Russian blue chips’ investment case, especially since the Finance Ministry finally succeeded in bringing state energy majors to pay the required 50% of IFRS net income.
VTB Capital (VTBC) on April 21 warns that “similar decisions in favour of keeping cash flows within companies – and at least postponing the final 2019 dividend payments – might be made by other companies in the sector, given the lack of clarity on oil price recovery and the impact of [coronvirus (COVID-19)] on global oil demand and economic growth.”
“Zero dividends are below the most con- servative forecast, indicating that Tatneft suffers the most among Russian oil companies in the current environment, supporting our cautious short-term view on the stock,” BCS Global Mar- kets wrote on April 21.
But VTBC suggests that Tatneft could only be the tip of the iceberg, and that the state- owned companies (Rosneft, Gazprom Neft, Gazprom, Transneft) might follow suit, the- oretically opting to use the right to postpone the FY19 dividend payout for several months. VTBC analysts are alarmed that “the combined negative impact might be underappreciated by the market.”
Tatneft decided to hold on to the dividends on ordinary shares, but still recommended a nominal RUB1 per share as 4Q19 for preferred shares on top of the previously distributed divi- dends for 9M19. The company has already paid RUB64.47 per share (both for ords and prefs) for 9M19, which translates to approximately 78% of FY19 IFRS net income.
“Thus this decision is formally in line with Tatneft’s dividend policy, which prescribes pay- ing 50% of the greater of the full year IFRS or RAS net income. However, the payment is still below our and, we believe, market expectations, as Tatneft’s ordinary and preferred shares lost 4.8% and 4.2% respectively within the first 15 minutes after the BoD decision announcement,” VTBC notes.
Sberbank CIB also sees the news as negative for the stock in the short term, noting that the management had previously been indicating a flat payment year on year, suggesting an addi- tional dividend payment of around RUB20 per share.
In November 2019, before the marker crash, BCS GM had already warned that the dividends of Tatneft are unsustainable, as they could exceed the company’s cash flow in the medium term.
In September 2018 Tatneft approved a 2030 strategy, which includes the construction of RUB70.6bn ($1bn) gas chemical complex by 2024, boosting oil output to 38.4mn tonnes by 2030, and spending RUB799bn in capex on extraction and RUB194bn on refining from 2019 to 2030. As a result, Tatneft anticipated its market capitalisation to rise to $36bn by 2030.™
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