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Articles & publications
05.04.2010
Verification of Rostelecom’s largesse: merged holding’s dividend strategy is worked outRBC Daily, Elizaveta Sergina
The regional telecommunications operators of Svyazinvest are set to pay out their final dividends to shareholder, since this summer the merger with Rostelecom will commence in line with the reorganization of the state holding. As RBC Daily learned, the future “national champion” in the field of telecommunications intends to adhere to the dividend policy of the current Rostelecom. The operator now pays out to its shareholders about 25-30% of its annual net profit.
The dividend payout issue has already been placed on the agenda of the board of directors of three of the holding’s subsidiaries – CenterTelecom, Southern Telecommunications (UTK) and Far East Telecom.
If the proposed amount of payouts is approved, it will become a record for all three companies.
“Last year many companies managed to cut costs dramatically, which resulted in good financial results. As a result, the amount of dividend rose conspicuously”, a member of the board of directors of one RTO said.
The owners of CenterTelecom’s common shares will receive dividends for last year in the amount of RUR 758.8 mln, while the holders of preferred shares will earn RUR 505.9 mln. In absolute terms, the proposed amount of dividends exceeds by 96% the total amount of payouts made in 2008. The dividends which the holder of UTK shares could receive amount to RUR 276.8 mln for common shares and RUR 184.5 mln for preferred shares. This is 3.3 times more than what was paid out a year earlier. The board of directors of Far East Telecom could propose to the annual shareholders meeting to approve 2009 dividends equal to RUR 325.7 mln for common shares and RUR 231.6 mln for preferred shares, which is 25% more than in 2008.
Meanwhile, as RBC Daily learned from a source at the holding’s management, the company’s dividend policy has already been preliminarily worked out also for the merged Rostelecom: at the first stage the plan is to remain committed to the same policy as conducted by the current Rostelecom.
The operator’s charter specifies that annual dividend payouts should be at least 10% of net profit on preferred shares and at least 5% of net profit on common shares. However, the actual amount of payouts made currently by Rostelecom is bigger. In 2008 the company paid out 30% of net profit, and 25% in 2007. The merged operator will stick to this level of payouts. “The policy could be changed at a later time if necessary”, according to the source.
The official representatives of Svyazinvest declined to comment on this information. Deputy executive director of the Investor Protection Association (which represents the interests of the holding’s minority shareholders) Alexander Shevchuk points out that minorities are pleased by the retrospective trend of the development for the dividend policy of Rostelecom. “We are also hopeful that payouts can be raised at a later time”, he pointed out.
A source at one of the RTOs noted that after the reorganization the state as the main shareholder of the merged company will receive access to most of the “dividend fund”. “While earlier RTO dividends went mainly to a managing company, which spent them on its own development, now with the disappearance of this company the situation has changed. This is another positive effect from the reorganization”, according to RBC Daily’s source.
If the merged Rostelecom remains committed in the future to the same level of payouts as now, the earnings of shareholders of the “national champion” will be comparable with the level of income earned by the shareholders of large cellular operators. The most generous of the Big-3 is currently MTS. The company’s dividend policy provides for payouts of at least 50% of net annual profit under US GAAP, the company’s representatives emphasize. The payout ratio could change depending on circumstances, including the outlook for revenue growth, capex requirements, funds generated from core activity, potential takeover opportunities, and also the company’s debt status. In 2008 MTS reported net profit equal to $1.930 bln, of which about 60% was allocated for dividend payout.
The shareholders of VimpelCom, according to the company’s dividend policy, are entitled to receive at least 25% of net profit, according to its press secretary Ksenia Korneeva. However, in 2006 and 2007 the amount of dividends was even bigger – about 40%. VimpelCom did not pay out any dividends in 2008. MegaFon has never paid out dividends once in its history, although last year the operator’s board of directors worked out a dividend policy according to which about 50% of net profit is to be paid out.
According to Svyazinvest’s IFRS financial statements, shareholders of the merged company will be able to look forward to dividend payouts amounting to RUR 10.5-12.6 bln, according to Veles Capital investment company analyst Ilya Fedotov. “However, this figure may be regarded as provisional, since dividends on preferred shares and common shares are paid out separately. “In addition, the number of prefs, according to our calculations, should decrease from 25% to 7.83% after the reorganization of Rostelecom. The amount of dividends will also depend on whether or not the charter is amended”, the analyst cautioned.
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