Polish Utilities Tumble as Minister’s Plan Risks Dividends

  • Minister ‘not interested’ in short-term investors in utilities
  • Chances for future dividends are being ‘wiped out,’ UBS says

Poland’s biggest power producers plunged after the government unveiled a plan to increase the nominal value of shares in the state-controlled industry, a move that would erode the companies’ ability to pay dividends.

PGE SA, Enea SA, Tauron Polska Energia SA and Energa SA all hit record lows during the trading session on Thursday. The WIG Energy gauge of the country’s biggest listed power companies dropped 4.4 percent to an all-time low on a day the MSCI Emerging Market Utilities Sector Index climbed 0.9 percent.

Energy Minister Krzysztof Tchorzewski wants to use power companies’ surplus cash to increase the nominal value of their shares by 50 billion zloty ($13.1 billion) over several years. The move, which will be taxed, will protect the companies’ reserves and boost their value in the long run, he said on Thursday. Poland’s 10-month-old government is pursuing what it calls “patriotic” economic policies that use state-controlled companies to further national interests, such as pushing power companies to invest in coal mining.

“From the point of view of both the state’s interests and Polish energy security, the sudden purchases of shares before utilities’ shareholders meetings, to get access to dividends, are harmful,” Tchorzewski told lawmakers in parliament. “Such shareholders are not interesting for the Law & Justice government. We are interested in shareholders who count on long-term growth of those companies.”

Budget Focus

Tchorzewski said the nominal value increase will generate about 10 billion zloty in taxes for the government, which is struggling to keep the budget deficit under the European Union’s 3 percent of gross domestic product ceiling after increasing outlays on social spending.

“It seems that utilities were already oversold, but the Energy Minister’s comments practically wipe out any chances for future dividends,” said Michal Potyra, an analyst at UBS Group AG in Warsaw. “With the shallow market we have here, that triggered a massive sell-off.”

Polish utilities have lagged their emerging market peers as companies poured money into unprofitable coal producers and boosted investment. Earlier this month, the government voted to raise PGE’s share nominal value by 467.4 million zloty, which will create 110 million zloty in additional taxes for the country’s biggest utility.

Dividend Play

Tchorzewski said last week that the tax charge stemming from the nominal value increase will be “much lower than the dividends” the companies would have to pay. The four state power producers, along with oil refiner PKN Orlen SA and gas company PGNiG SA, have paid a total of 21.6 billion zloty in dividends since 2010. About half of that amount went to the state coffers, according to Bloomberg calculations.

Poland plans to “systematically” continue increasing nominal share value at its utilities from 2017, Tchorzewski said. The decision regarding which companies will follow PGE depends on the “individual financial standing” of each utility. The current nominal share capital in PGE, Tauron, Enea and Energa totals 33 billion zloty.

PGE fell 5 percent to 10.4 zloty on Thursday, the lowest close since its 2009 listing and extending its year to date drop to 19 percent. Enea declined 6.8 percent, Energa 3.4 percent and Tauron 4.7 percent.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE