Gazprom to Rosneft Decline as Dividend Concern Increases

OAO Gazprom and OAO Rosneft, Russia’s biggest companies, fell to the lowest levels in five years as JPMorgan Chase & Co. cut its ratings on the stocks, citing a worsening outlook on dividend payouts.

American depositary receipts of Gazprom, the world’s biggest natural-gas company by output, dropped 3 percent to $6.10 in New York, extending this year’s decline to 29 percent. Rosneft, Russia’s largest crude producer, sank 4.2 percent to $5.03 in London. The stocks closed at the lowest since at least July 2009. JPMorgan analyst Andrey Gromadin reduced Gazprom to neutral and Rosneft to underweight in a report yesterday.

The “all-important” dividend outlook for energy companies is coming under pressure as oil prices tumble to a four-year low and Russia’s economy weakens under international sanctions linked to the Ukraine conflict, according to the report. Russia’s gross domestic product grew 0.7 percent in a third quarter of deceleration, deepening its worst slowdown since a 2009 contraction. With earnings set to drop for a third year in 2014, Gazprom’s dividend payout next year may plunge 44 percent, VTB Capital said in August.

“The market is concerned the dividends will decline as the oil price falls at a time when sanctions restrict the companies’ access to financing,” Ivan Manaenko, head of research at Veles Capital LLC in Moscow, said by phone. “Expectations of higher dividends as exporters benefit from the weaker ruble had been the major driver in the market over the past couple of months and that driver is now fading away.”

Profit Decline

Rosneft’s net income will tumble 26 percent to 401 billion rubles ($8.6 billion), according to the mean of 10 analyst estimates compiled by Bloomberg, while Gazprom’s adjusted net profit is projected to slide 8.4 percent to 1.04 trillion rubles.

West Texas Intermediate and Brent oil fell to four-year lows yesterday amid signs that OPEC remains unwilling to reduce output. WTI for December delivery declined 3.9 percent to $74.21 a barrel on the New York Mercantile Exchange, the lowest since September 2010. Oil sank into a bear market last month.

The ruble has lost 23 percent in the past three months, the worst performer among more than 170 currencies tracked by Bloomberg. The plummeting ruble stokes inflation and lower oil prices erode export revenue of the world’s largest energy exporting nation.

Policy Review

Dividend policies are under government review in Russia. Rosneft’s payout may decrease 18 percent next year, according to a Bloomberg Dividend forecast.

“We see an uninspiring dividend outlook and limited upside potential in both names next year,” Gromadin said in the JPMorgan report. He previously had a rating equivalent to buy for Gazprom and neutral on Rosneft.

The dividend projections compare with the government’s push last year to increase payouts by state-controlled companies in a bid to lure foreign investors and boost budget revenue. The companies were due to pay at least 35 percent of profit under international accounting standards from 2016 to boost payments to the budget, the Finance Ministry said last year. Russia’s Economy Ministry opposed the measure in May.

“The market remains turbulent,” Kirill Yankovskiy, the director of equity sales at Otkritie Capital Ltd. in London, said by phone. “While it does make sense to expect a slowdown in dividends from Gazprom and Rosneft, the payouts are unlikely to slow excessively as the government counts on that money as well.”

The Bloomberg index of the most-traded Russian companies in the U.S. declined 2.8 percent to 69.85. The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that tracks the nation’s stocks, dropped 3.5 percent to $20.39.

RTS stock index futures expiring in December fell 0.8 percent to 99,540 in U.S. hours. The RTS Volatility Index, which measures anticipated swings in futures, rose 4.2 percent to 40.05.

Moscow-based United Co. Rusal climbed 1.1 percent to HK$4.50 at 10:30 a.m. in Hong Kong, poised for the highest close since Sept. 22.

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