On September 1, the MOEX Index rose to its highest level in more than three months. In particular, such rapid growth was associated with the rally in Gazprom shares on August 31.
Shares of the Russian gas giant rose more than 30 percent on Thursday after the company posted record first-half profits and recommended an early dividend after the close of trading on Tuesday.
The decision of the general meeting once again came as a huge surprise for the market: the board recommended the payment of a record dividend in the company’s history in the amount of 1.25 trillion rubles.
Meetings and cancellation of dividends in 2022
Dividend epic Gazprom
What do not say, but Gazprom dividend payment in 2022 really promises to be a record: their amount is comparable to the past, for the first time in the company’s history, dividends not paid in the summer, the amount of which was supposed to be 1.24 trillion rubles. But as an absolute monopolist of the Russian market, a company whose assets make up a good half of the entire MOEX index, could it be so easy to abandon its own promises and obligations?
It all started in May 2022, when the meeting recommended paying the then-record dividends for 2021: the market immediately reacted with a growth of shares by more than 30% and did not stop in anticipation, but began to pull up the rest of the shares of large Russian companies, even those not particularly related to to gas production or oil production, such as Sberbank. The whole saga, trading volumes and turbulent mood in the market lasted until June 30 – the moment when the management decided to take back their words by refusing to pay.
Quotes immediately collapsed to their pre-dividend values, falling by the same 30%, but within one day. The shares remained similar until the new decision of the meeting: at the time of the announcement of dividends for the first half of 2022, the shares were quoted 31.5% below the values of June 29.
Why did the company make such an ugly and unpopular decision, meaning that for the first time since 1998 Gazprom is violating its obligations and not paying dividends? It would seem that the answer to this question lies on the surface: high geopolitical tensions in the world, sanctions, the impossibility of implementing a number of key projects, including Nord Stream 2. All these reasons take place, and could really significantly affect the management’s decision, but could he even pay Gazprom interim dividends in 2022?
The 1.24 trillion dividend that the company was due to pay is half of IFRS adjusted earnings for 2021.
At present, based on Gazprom news, dividends will amount to a similar amount under IFRS, but earned for the first half of this year, which already hints at the excess profits of the enterprise – the amount of net profit for the first half of 2022 is equal to the entire profit for 2021, and this data was already in the hands of management at the time of the decision. Why was the dividend canceled in June? A possible answer to this can be found in the authoritative sources.
The main shareholder of Gazprom is the Russian Federation, and it is not for nothing that the company is called a “national treasure”. And for a number of reasons given presidentincluding asset freezes, sanctions, economic collapse, ruble re-strengthening, etc. The budget deficit Ministry of Finance estimatesby 2025 it may amount to 6 trillion rubles, and by August 2022, based on calculations by Anton Siluyanov — The deficit could amount to almost 3 trillion rubles by the end of the year, or 2 percent of GDP.
In such conditions, it is not surprising that the country’s leadership is looking for any ways to cover the deficit, and, on the example of the actions of the Central Bank, we must pay tribute – they cope above all expectations. From the record dividends announced by Gazprom, the Russian Federation was to receive 2/3 of 1.24 trillion, and the remaining 430 billion fell on investors. About 860 billion may not seem like a very impressive amount within the resources of the state, but here it is worth recalling that the entire support package for the Russian market was estimated at only 1 trillion: so this is more than an impressive amount.
But at some point, Gazprom refused to pay dividends, and immediately after, a temporary tax surcharge, equal to 1.2 trillion rubles. Based on the report of Vedomosti, in fact, the state receives the funds that it should have received, but with an extra charge of 430 billion rubles. Perhaps that is why such an unpopular decision was made to cover the deficit in the budget of the Russian Federation. But will Gazprom pay dividends in 2022?
Company dividend policy
Gazprom’s dividend policy until June 2022 was absolutely predictable: since 1998, the company has been paying dividends regularly, reinforcing its status and market capitalization. Year by year, their size increased and by 2012 came to the range of 5-6%, in which it remained until 2022. Alleged Gazprom share dividends in 2022 should become the largest in the history of the company – the yield could be 50% of net profit for the first half of 2022, or 28.6%, which is equal to 51.03 rubles per share.
In the second half of August, gas prices on European exchanges reached new records: for example, on August 26, the cost of next month’s contracts on TTF temporarily rose to $10, which is a record since February 24. At the same time, there is unprecedented price volatility: the market remains tight, and the harbingers of the coming winter continue to grow. The graph shows the value of Gazprom shares over the past year.
According to available data for the first half of the year, gas consumption in the EU countries decreased by almost 12% compared to the corresponding period of the previous year and by 6.5% compared to the average for the last five years, and the average filling level in the EU at the end of the month is already was 80% – but this is still not enough in the future, since gas is used not only for the needs of the population, but also for plants and factories that produce, for example, fertilizers. There is basically nothing to plug the hole in demand, especially on the eve of the cold months, and although the United States has maximized shale gas production, half of it goes to its own needs, and the development of green energy, which has included nuclear energy since the beginning of the year, is either impossible in some countries due to climatic and other conditions, or requires a minimum of 5 years of development and construction (as is the case with nuclear power plants).
In addition, despite a theoretical overcapacity in the US, inventory levels are below the seasonal average. Replenishing them is problematic, including due to the fact that US $10 natural gas rates have not been seen in the US for 15 years, and against the backdrop of an impending recession coupled with cold months, the allocation of excess funds for these needs is not considered a priority, so reserves continue to be spent.
The current situation is connected with the global crisis, which has been going on and intensifying for a year already. They are followed by rising gas prices, and the availability of non-contract gas in the world is declining. Continued record LNG shipments to Europe and larger purchases of feedstock by Asian countries, China and Japan, mean that supply elasticity and the ability to attract additional volumes of gas are reduced due to further price increases. Problems and concerns in the market are largely fueled by geopolitical tensions in the world.
The heating season and six months of traditionally increased demand and possible surges in consumption in the event of severe and / or prolonged frosts are still ahead.
Gazprom is reducing exports to the EU, and since spring its decline has become more and more noticeable. Recently, deliveries have stopped not only to those companies and countries that refused to pay for gas in rubles (Poland, Bulgaria, Finland, Denmark, the Netherlands), but also, due to unspecified problems with the execution of the contract, to the French Engie.
After significant restrictions on transportation through Ukraine and the complete cessation of the use of the Yamal gas pipeline (May this year), the Russian company has been reducing supplies via Nord Stream since June. In recent weeks, its use did not exceed 20% of the capacity, and for the period from August 31 to September 2, Gazprom announced an unplanned complete suspension of the passage of countries that refused to pay gas payments in rubles, after the G7 countries agreed on limiting prices for the export of Russian oil.
On the other hand, there are growing concerns about declining demand in China, which could be caused by a possible pandemic. Commodity prices are also under pressure from a strong dollar, supported by the prospect of further significant US interest rate hikes. China’s fuel demand could fall by 380,000 t/d this year, the first since 2002, according to Energy Aspects.
In the United States, the volume of gas supplied to the market is lower than both pre-pandemic and last year’s figures. The International Energy Agency also does not expect an increase in demand in the world market for raw materials in the 4th quarter of 22, an improvement is expected next year.
Dividend forecasts for 2022 and 2023
Increasingly, it suggests that Gazprom will continue to generate excess profits at least in 2022 and in the first half of 2023. In addition, deficit forecasts the state budget has not gone anywhere, and this suggests that it will gladly receive dividends from Gazprom as the main shareholder, in the amount of the same 860 billion. It is difficult to say something unambiguous about dividends in 2023, but when Gazprom will pay dividends in 2022 – it will be more certain to assume that they will do this in 2023.
Miller himself spoke about dividends, saying that the results for the first half of the year are “very, very, very good,” adding that Gazprom plans to invest 526 billion rubles by 2025, including increasing gas supply to Russia up to 72 percent. Such plans can also emphasize the positive balance of the company, but it is also important to remember that no matter what Gazprom forecast, dividends in 2022 the company has already canceled, so it’s worthwhile to approach their acquisition very deliberately.
The materials presented in this section do not constitute individual investment advice.