Russia is considering an increase in dividends paid by state-controlled companies to 35 percent of profit to boost budget revenue, said three government officials with knowledge of the matter.
The government plans to discuss the Finance Ministry’s proposal at a meeting with President Vladimir Putin next week, the people said, asking not to be identified because the talks aren’t public. No decision has been made, they said. OAO Rosneft, the world’s largest publicly traded oil producer, and OAO Gazprom, Russia’s natural-gas export monopoly, surged.
The world’s biggest energy exporter is seeking to balance its budget after Putin pledged to boost social spending during his campaign for a third term in office. The fiscal deficit may be 0.6 percent of gross domestic product this year and 0.2 percent next year, according to the Finance Ministry.
The government is also trying to lure investors to counter capital outflows and the cheapest equities among emerging markets. In November, the government ordered state companies to pay no less than 25 percent of their net income in dividends.
Raising dividends “helps in the push to make Moscow a financial center and a more attractive destination to invest,” as well as feed the budget, Mattias Westman, chief executive officer of Prosperity Capital Management Ltd., which oversees about $4.5 billion in Russian assets, said by mobile phone from London.
Gazprom climbed 1.1 percent to 131.86 rubles in Moscow, the highest level in more than a month. Rosneft erased losses, rallying to close up 1.3 percent at 221.34 rubles, the highest in more than three weeks.
The Kremlin has brought in Prosperity’s Chief Investment Officer Alexander Branis to advise on corporate governance.
The Finance Ministry is also proposing that companies pay out profit calculated to International Financial Reporting Standards, instead of local accounting rules, the people said.
While adhering to the 25 percent-rule, Gazprom is recommending 2012 dividends that are 33 percent lower than a year earlier after Russian-standard profit slumped. The state-run company plans to move to IFRS results for 2014 dividends. Gazprom shares trade at about 2.5 times earnings, the lowest among the world’s 20 largest oil and gas companies, according to data compiled by Bloomberg.
Westman said the ministry has looked at raising dividends to as much as 50 percent. The three people didn’t confirm that number.
“Companies can afford 50 percent and it would also benefit the government,” Westman said. “They could do it next year or in a few years time.”
Increasing the payout to 35 percent may contribute an additional 239 billion rubles ($7.7 billion) to the budget, according to a Finance Ministry document prepared for the government. That compares with the 2013 plan for 172 billion rubles of revenue from dividends.
Russia’s 50-stock Micex Index 4.5 percent estimated dividend yield compares with 3.5 percent for MSCI Emerging Markets Index. The Micex has slumped 2.8 percent this year, compared with a 0.7 percent gain for the MSCI measure. The Russian gauge is valued at 5.6 times reported earnings, the lowest level among 21 emerging markets tracked by Bloomberg. The MSCI Emerging Markets Index trades at 12 times profit.
Prosperity has been mobilizing minority investors in OAO TNK-BP Holding after state-run Rosneft said it may discontinue the acquired company’s high dividend policy. Rosneft purchased the TNK-BP venture in March for $55 billion from BP Plc and the Alfa-Access-Renova group.