Gazprom Damps Prospect for Dividend BoostBy
Company’s second-quarter profit drops 80 percent on FX loss
Non-cash items may hurt Gazprom payout, analysts say
Gazprom PJSC’s profit slumped in the last quarter, cooling the prospect of an increased dividend from the world’s largest natural gas producer.
Net income plunged 80 percent as record gas exports to Europe were offset by foreign-currency losses, the Moscow-based company said in a statement late Tuesday. Gazprom aims to keep its dividend payments in rubles no lower than last year’s level while maintaining “conservative financial strategy,” it said in a separate release after its board discussed the payout policy for 2018 to 2020.
“This is a well-known strategy that we all live with -- Gazprom apparently has no desire or will to boost dividends even with really good operational results,” Otkritie Capital analyst Artem Konchin said by telephone Wednesday. “All non-cash losses continue to dampen the outlook for a stronger dividend,” he said.
The state-run gas giant, which plans to match or even beat last year’s record European exports, has fought government demands to raise its dividend for years. While officials have been pushing state-run companies to pay as much as 50 percent of profit under international financial reporting standards, Gazprom has won exceptions citing high costs and tax burden.
The value of the ruble slid 11 percent from April to June against the euro and also fell against the dollar, reversing a gain in the previous three-month period. A weaker ruble is hurting Gazprom’s income as it has 78 percent of its debt denominated in dollars and euros, which it re-evaluates each quarter.
Gazprom executives have repeatedly said the company aims to keep dividends at the same level as in 2016 for the next three years, but with a possibility of an increase if market conditions and investment plans allow. As the gas producer continues to expand export pipelines, spending money on links to Germany, Turkey and China, its free cash flow may remain negative through next year. That “does not bode well for its dividend payouts,” Renaissance Capital analysts in London said in a note last week.
Under current dividend policy, Gazprom can pay out between 17.5 percent and 35 percent of profit under Russian accounting standards, which dropped 91 percent to 17.4 billion rubles in the first half. It has the right, but isn’t obliged to, exclude paper losses or gains to calculate payments.