Finance Ministry Pushes IFRS while State Firms Push Back

By Ivan Shlygin, July 9, 2014

the value of the company,” thinks Shenk. 

Not all experts consider the 35-percent share of net profit calculated as per IFRS to be realistic for dividend payment. “In a situation when the government needs to fill state coffers, the majority of state-owned companies are in transition toward paying higher dividends based on net profit calculations as per Russian accounting standards, taking into account consolidated profit. Some companies can take longer than others to complete this process depending on the size of their respective investment programs, operating cash flow, etc, but the usual scenario is the 25-percent share of net profit calculated as per IFRS,” Vladimir Vedeneyev, head of Investments Directorate at Raiffeisen Capital managing company. According to Vedeneyev, it is highly unlikely that state-owned companies would pay higher dividends after raising the threshold from 25 percent to 35 percent of net profit on the backdrop of deteriorating terms for borrowing in mid-term perspective. 

Nevertheless, the absolute growth of petroleum companies’ financial performance indicators, influenced by devaluation of the ruble, and a steady, high price of oil, will cause dividends to rise, perhaps, in the shape of additional payments, which could positively surprise investors in short-term perspective, adds Vedeneyev.

Lack of Consensus 

Both officials and companies can’t find common ground regarding the share of net profit that should be allocated for dividend payment. Gazprom told OGE that the company calculates dividends based on net profit as per Russian accounting standards. In recent years, it has been allocating 25 percent of that amount to pay dividends. “We are looking into the possibility of switching to dividends calculation based on net profit as per IFRS,” they said. Earlier, Gazprom representatives had said that such a switch could occur in 2014. However, these plans might be hampered by the crisis in Ukraine, as Gazprom CEO Alexei Miller said earlier.

Transneft is in a similar situation – as first Vice President Maxim Grishanin said earlier, the company had planned to start paying 25 percent of net profit as dividends based on IFRS as soon as 2016. 

Rosneft and Gazprom Neft have already switched to paying 25 percent of net profit as per IFRS and NOVATEK went even further: according to the company’s dividend policy, which was adopted on April 25, shareholders should be entitled to at least 30 percent of consolidated net profit as per IFRS. 

LUKOIL, as noted earlier by Bank of America Merrill Lynch and Gazprombank analysts who quoted LUKOIL’s top managers, strives to increase dividends to 40 percent of net profit as per IFRS. Currently, the corporate dividend policy envisages a minimum 15-percent payment to shareholders as per IFRS or U.S. GAAP.

For the sake of comparison, this year, Germany’s RWE energy concern plans to pay 40 to 50 percent of net profit to shareholders.