Gazprom Said to Seek Exemption From Dividend Rule to Aid VEB

  • Gazprom said to cite costs of potential share buyback from VEB
  • State may support proposal on lower dividend, official says

Gazprom PJSC is asking the Russian government for a waiver from a new rule on dividends because the natural gas supplier may need to preserve cash to help bail out the state development bank, according to an official with knowledge of the matter.

The energy company has asked the state to allow it to pay out less than 50 percent of its international-standard profit in dividends, two officials said, asking not to be identified as the information isn’t public. The government may support the request, according to one of the people. Gazprom said it may use the savings to buy its own shares back from the state lender, Vnesheconombank, the person said.

Gazprom shares dropped as much as 6.1 percent to 158.25 rubles on the news, retreating from a more than three-year high.

“The market is disappointed, though I’m personally not surprised,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. “Dividends under the new rule would be a huge burden for Gazprom amid less than perfect financial prospects.”

Earnings Decline

The state has been considering a rescue plan for Vnesheconombank, or VEB, which was hit with U.S. and European Union sanctions following Russia’s annexation of Crimea from Ukraine in 2014. One option is to have Gazprom purchase 2.7 percent of its own shares from VEB, people with knowledge of the matter said last month.

At the same time, Russia is pushing for more funds from state companies as a collapse in the price of crude oil, the biggest source of budget revenue, deepens the recession and threatens to widen the deficit. While Gazprom faces a drop in its gas-export earnings to the lowest in 12 years, its shares rallied after the government’s April 18 order on boosting dividends at state companies.

The state may support a proposal to let Gazprom distribute 50 percent of profit under Russian accounting standards instead of under international financial reporting standards, one of the officials said. Gazprom didn’t immediately comment.

Dividend Recommendation

Gazprom’s management recommended an increase in the 2015 dividend by 2.8 percent to 7.4 rubles a share, which is equivalent to 50 percent of adjusted net income based on Russian accounting standards, less than a week before the government announced the new rule. That compares with a possible 16.62 rubles a share based on international-standard profit, which would be a record high.

VEB’s stake in the gas producer had a value of 108 billion rubles ($1.6 billion), based on the most recent closing price in Moscow. Paying 50 percent of profit under Russian accounting standards, rather than international, may save Gazprom 218 billion rubles, according to Bloomberg calculations. The state should decide on a dividend recommendation before the company’s board meets on May 19.

VEB bought the Gazprom stake from Germany’s EON SE in 2010, when the gas producer’s market capitalization was about $140 billion. It has since fallen to about $60 billion.

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