Russia is rethinking investor friendly dividend reforms as the Ukrainian crisis weighs on its faltering economy. Rules introduced last year that would oblige state companies to put more of their profits in shareholders’ pockets may be shelved, according to a report out on Wednesday.
Russia has been pushing state companies to pay more generous dividends in an effort to improve the country’s investment image and boost interest in upcoming privatisations. Rules introduced in late 2012 setting a minimum 25 per cent pay out were a step in the right direction but, as often happens with Russian regulations, there was room for interpretation.
Shares in Coal India were up 2.6 per cent to Rs296.35 by 10.30am on Wednesday, after the state-controlled fuel supplier declared a special interim dividend.
It’s another unexpected move by New Delhi as the state struggles to meet its target fiscal deficit of 4.8 per cent of GDP. The public coffers will benefit by over $2.6bn.
Russia’s finances are being squeezed by a contraction in economic growth and faltering oil prices. So what better time for Russia to demand bigger dividends from its powerful state companies?
New rules forcing the likes of Gazprom, Rosneft and Sberbank to share more of their profits with investors will land an extra $8bn in the Russian budget in 2014 and continue to boost state coffers for years to come, according to a report by Markit Equities Research, the financial information services company.
Heavyweight banker Andrei Kostin has waded into the debate about the Kremlin-led pressure on Russian companies to boost dividends.
Speaking on Wednesday at a St Peterburg banking conference, the chief executive of state-controlled VTB suggested banks should be allowed to pay some of their dividends in shares.
Given his elevated status and political contacts, Kostin would not have gone public if he thought his proposal would be shot down. So expect some tough talk: the Kremlin wants bigger payouts from state-run groups but the banks want to keep their cash.
Russia is casting around for ways to boost government revenues as economic growth slows amid fears of a looming recession.
One idea is to go to state-controlled companies and ask them (again) for higher dividends. Only six months ago rules were introduced obliging state-run companies and their subsidiaries to pay 25 per cent of net profits to shareholders. Now the Russian finance ministry has floated a plan to force state companies to pay out at least 35 per cent.
Good news for Poland’s cash-strapped government on Friday: PKN Orlen, the state-controlled refiner, is to start paying dividends again after a five-year hiatus.
True, the state’s stake in PKN is just 27.52 per cent, so much of the benefit will go elsewhere. But as readers of P G Wodehouse will know, every little bit added to what you’ve got makes a little bit more.
That EM companies don’t return enough cash to investors has been a commonly-aired grumble for some time. Things could be about to change in Shanghai, though, as the regulator moves to pressure listed companies into minimum dividend payments.
The sixth in our series of guest posts on the outlook for 2013 is by Morgan Harting of AllianceBernstein
For two years, emerging markets companies have delivered inferior earnings growth and investment returns compared to peers in sluggish developed market economies. Now, the consensus is that earnings growth will catapult from near-zero in 2012 to 13 per cent in 2013. Hopes were high at the end of 2010 and 2011, too, yet analysts were then forced to revise down their earnings estimates. Will 2013 represent another triumph of hope over experience?
Regulations introduced last week obliging Russian state companies to pay at least 25 per cent of their profits in dividends look like a step in the right direction for long suffering minority shareholders.
But it appears that state utilities are simultaneously taking an even bigger step backwards, launching yet another round of state-funded secondary share issues that raise questions about the government’s commitment to corporate governance.
Russia on Friday implemented much-debated orders for state-controlled companies to boost dividends in a move that could perk up interest in the country’s undervalued stock market.
State companies’ dividends flow into state coffers, but minority shareholders will benefit – and non-state companies are likely to follow the Kremlin’s lead.
Poland’s cash-squeezed government is pressing the companies it controls for high dividends, dismaying the CEOs of some of Poland’s largest groups – but providing a tasty lure for payout-hungry international investors.
“International investors are flocking to reap the increasing dividend yields on Polish state-controlled assets, despite managements’ reservations about government interference,” says a comment by Markit, the equities research company.
Good news for long-suffering investors in Russia’s underperforming stock market. Acting on government instructions, Rosneft has decided to double the size of its 2011 dividend pay out in a move that will put some money in shareholders’ pockets and could prompt better valuations not just of the state oil company but other listed Russian entities as well.
By Manu Vandebulck of ING IM
Western investors have always played the emerging markets income story through investing in companies like Procter & Gamble, which generates a large part of its profits from emerging markets. However, in terms of dividend yield, investors should look to increase their exposure to home-grown EM companies directly.
Indeed, the dividend yield on emerging market equities, currently 3 per cent, is now higher than some major developed markets such as the US (2 per cent) and Japan (2.6 per cent), although Japan also has shown impressive dividend growth over the last 5 years. This year, EM companies will pay 35 per cent of retained earnings as dividends, which is a third higher than 2000 levels. Furthermore, a higher percentage of emerging market companies are paying dividends than in the developed world – around 85 per cent compared to 82 per cent.
By Khoonming Ho of KPMG
Circular 30, recently issued by China’s state administration of taxation (SAT), is a very positive development for foreign investors in China, bringing tax relief on dividends for many foreign investors.
The new rules don’t reduce the domestic Chinese withholding tax rate on dividends for foreign investors, which remains 10 per cent. But, foreign investors that hail from countries covered by relevant tax treaties, the new regulations have made it easier to obtain tax treaty benefits and bring down the withholding tax rate on dividends to as little as 5 per cent.
Mention emerging markets equities and two words usually spring to mind: growth and risk.
The idea – or so it goes – is that exposure to EM equities will deliver outperformance because as the economies in these countries boom, so too will the earnings and share prices of the countries’ leading companies. The trade-off though, is having to deal with greater volatility and with imperfect corporate governance.
But a new crop of EM funds is promoting another reason to buy into EM equities – one usually associated with more conservative investment strategies: dividends.