Russia’s dividend quest said on track to miss target in 2018
October 25 2017 11:59 PM
A logo is displayed above the headquarters of Gazprom in Moscow. Gazprom, Transneft and Sberbank are among companies that will pay less in dividends than anticipated this year and next as they are able to discuss the size of payouts directly with President Vladimir Putin, according to officials.

Bloomberg Moscow

Russia will fall far short of its goal to wrest billions of dollars in dividends from its biggest companies as the government runs up against their lobbying power, according to officials with knowledge of the matter.
Revenue from dividends next year will reach only about half of the 380bn roubles ($6.6bn) planned, two people said, speaking on condition of anonymity to discuss information that isn’t yet public. In 2017, the authorities expect to collect 250bn roubles less than anticipated.
The entrenched shortfall is intensifying pressure on the finance ministry to find a way to force state companies to distribute 50% of their profit under international accounting standards in dividends, without any more exceptions. The Audit Chamber, the state’s budget monitor, is arguing in favour of more flexibility and a differentiated approach. Equity investors, eager for the payouts, are watching the debate closely.
“It looks awful that in the course of the past two years, the government introduces a rule while drafting the budget and it isn’t being honoured,” Tatyana Golikova, the head of the Audit Chamber, said in an interview. “Without a new approach, the discussion won’t ever end.”
Gazprom, Transneft and Sberbank are among companies that will pay less in dividends than anticipated this year and next as they are able to discuss the size of payouts directly with President Vladimir Putin, according to the officials. Russia’s largest lender, Sberbank, makes payments to the central bank, its controlling shareholder, and not directly into the budget.
“Although a push for a 50% payout will probably remain, the likelihood of a 50% payout by the main companies seems to have declined considerably from earlier this year,” Vladimir Osakovskiy, an economist at Bank of America Corp in Moscow, said in a report.
At the moment, the law stipulates that state companies pay at least 25% of net income as dividends, without specifying the accounting standard. The situation has changed since that rule was introduced in 2006, according to Golikova.
“A new mechanism is needed for dividend payouts – their distribution and the procedure for making decisions,” she said.
While public finances have stabilised with a rebound in oil prices, squeezing bigger dividends out of state companies remains on the agenda as the Finance Ministry looks to balance the books by 2020. It sees the budget deficit narrowing to 1.3% of gross domestic product next year, almost a full percentage point less than initially planned.
Instead of introducing a flat rate, some minimum and maximum thresholds can be set, according to Golikova. The government, represented on boards of state companies, can continue to exercise control over the effectiveness of investments, she said.
“Companies will always be right,” said Golikova, whose prior roles included a top Finance Ministry post and advising Putin. But “financial authorities will also always be right, because they are addressing the issue of replenishing the budget.”
Gazprom paid out 20% of its 2016 profit under international standards this year, compared with 13% for Transneft and 25% for Sberbank.
The government can find a consensus with Sberbank on its dividends, and it’s possible for the lender to distribute 50% of profit, finance minister Anton Siluanov said this month. Almost all state companies, excluding Gazprom and Transneft, are ready to meet the 50% requirement, Siluanov said, adding that he’s hopeful that the two energy companies will also gradually increase payouts.
Meanwhile, the Economy Ministry is working with the central bank on creating a mechanism for state-owned lenders to link dividends to their capital adequacy ratio. Golikova opposes that proposal, questioning why authorities would pump money into some state banks, pushing their capital above the minimum requirement, and then try to squeeze out dividends.
The mechanism is still being discussed, and the government is yet to decide on details of the approach, according to e-mailed comments from the economy ministry’s press service.

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