Russia Tightening State Dividend Rules Before Asset Sales

Russia is making it harder for state companies to sidestep dividend rules as it seeks to boost government revenue and sell assets to bolster the budget.

“We’ve started to take a tougher stance on companies’ dividend policy,” Igor Shuvalov, first deputy prime minister, said in an interview June 21 in St. Petersburg. From next year, the prime minister’s approval will be needed to exempt companies from a payout equivalent to at least 25 percent of profit under international accounting methods, he said.

While the Micex stock index trades at 4.9 times estimated earnings, the least among 21 emerging markets tracked by Bloomberg, 11 of 17 Kremlin-backed companies included in the benchmark gauge ignored the government’s payout rule. Bigger dividends would support companies’ market value as Russia seeks to raise 427 billion rubles ($13 billion) from state asset sales this year, helping the budget after President Vladimir Putin increased spending during his election campaign last year.

Russia required state-backed companies pay at least 25 percent of net income as dividends in November, without specifying whether the payouts should be based on Russian or international accounting rules. The board of natural-gas export monopoly OAO Gazprom recommended a 2012 payout 33 percent less than the previous year as profit slumped. The dividend is equal to 25 percent of net income based on domestic accounting rules and 12 percent under international standards.

International Standards

“We will gradually unify the dividend policy into a single rule -- 25 percent of profit under international financial reporting standards,” Shuvalov said. The year after next, a government decision will be needed to avoid the regulations, he said.

Budget revenue from state companies’ dividends will drop 19 percent to 172 billion rubles in 2013, according to a Finance Ministry document obtained by Bloomberg last month. Were the 25-percent rule followed in full, an additional 153 billion rubles would flow into state coffers, the ministry said.

Russian stock valuations compare with 10 times expected 12-month earnings for Brazil’s Ibovespa, 8 times for the Shanghai Composite Index and 13 times for India’s Sensex. The Micex rose 0.6 percent to 1,297.59 by the close in Moscow after falling 0.7 percent yesterday.

The Micex is valued at 0.7 times net assets, compared with 1.3 times for the MSCI Emerging-Markets Index. The Russian index has an estimated dividend yield of 4.5 percent versus 3.2 percent for the MSCI Emerging Markets gauge. The gap hit a 4.5-year high of 1.5 percentage points in April.

Less Government?

Russia is seeking to boost the attractiveness of its companies, even as its economy grows at the slowest pace since 2009, to increase revenue from state-asset sales through the Moscow Exchange planned for the second half of the year.

“Our goal is to cut the government’s stake in the overall property to one-third over five years,” Shuvalov said. Majority state-owned companies account for half the economy, according to BNP Paribas SA estimates.

The Finance Ministry estimates the budget deficit will be 0.6 percent of gross domestic product this year compared with about 0.1 percent of GDP in 2012.

VTB Group, Russia’s second-biggest bank, is considering a 0.143 kopeks per share dividend for 2012, equivalent to 17 percent of net income in international standards, the company said in a May 24 statement. OAO Sberbank, Russia’s largest lender, plans to pay a dividend equal to about 17 percent of net income, Chief Executive Officer Herman Gref said March 22.

“Lifting dividend payments will raise interest in state companies,” Oleg Popov, who manages $1 billion of securities for Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by phone from Moscow.