Norilsk Nickel, which adjusted its dividend policy in April because of the fall in prices for metals to multi-year lows, has decided to pay intermediately a half of the final dividends instead of the planned 30%. Analysts don’t rule out that this is a way of the company’s co-owners to insure against volatility of the rates.
The Norilsk Nickel’s Board of Directors has recommended the shareholders to approve the interim dividends for the first nine months of 2016 in the amount of 70.3 billion rubles, or $1.1 billion (at the rate of 444.25 rubles per share), the company said. This is almost two tomes more that the guideline for the interim dividend that Norilsk Nickel gave in April, when represented its new dividend policy, which takes into account the volatility of the metal prices. In the first quarter of 2016, the price of nickel reached the lowest level over the past 12 years ($7.7 thousand per ton), and the copper price - a seven-year minimum ($4.3 thousand per ton.). Then, Norilck Nickel said that the payments for the first nine months of 2016 would amount to “approximately $600 million”, but the forecast of the minimum level of the final dividend was cautious too - $1.3 billion.
Since April, the dividend policy of the company assumes the payment of 60% of its EBITDA for the year if the company's debt load is below 1.8 of the net debt/EBITDA ratio, the payment of 30% of the EBITDA if the coefficient if more than 2.2 and the floating amount of the payments if the level of the net debt is in the range of 1.8 to 2.2 of the EBITDA (but not less than $1 billion from 2018). At the same time, the company noted that "it will seek to maintain the payment of the interim dividends for the first nine months at the level of up to 30% of the expected total dividend for the year". The final dividend is traditionally paid in June and July.
But already in August, against the background of the recovery in the prices, senior vice-president - chief financial officer of Norilsk Nickel Sergei Malyshev admitted that the company's debt load by the end of the year might be lower than 1.8 of the EBITDA. Now the Bloomberg’s consensus forecast on the Norilsk Nickel’s EBITDA for 2016 is $3.6 billion ($3.8 billion in 2017). In particular, UC Rusal, owning 27.8% of Norilck Nickel and using dividends from the package to reduce the debt burden (its net debt at the end of the third quarter was $8.3 billion), is based on it. Other key shareholders of Norilsk Nickel - Interros of Vladimir Potanin (30.3%) and Crispian Investment Ltd of Roman Abramovich and Alexander Abramov (6.5%) – use the dividends for "various projects".
A representative of Norilsk Nickel noted in an interview with the Kommersant that the accepted formula was used to calculate the total annual amount of the dividends, and the decision of which portion can be paid as the interim dividends "is made in each case by the Board of Directors, taking into account the current macroeconomic situation and the financial condition of the company". The recommendation of the Board of Directors was affected by the positive pricing environment, says the Kommersant’s source, close to one of the company’s shareholders. On Friday, a ton of nickel cost $11.7 thousand tons on the LME, of copper - $5.6 thousand. "The dividend policy is primarily determined by the prices of the company’s metals, although the key shareholders are always possible to correct this "gentleman's agreement", if there is an urgent need in cash,"- agrees the Kommersant’s source, close to another co-owner of Norilsk Nickel. But the Kommersant’s interlocutors didn’t hear about such need.
Sergei Donskoy of Societe Generale says that a modest guideline of Norilsk Nickel in the size of the interim dividends "caused some issues": such non-uniform distribution of the profits may be uncomfortable as for the company itself, as for its shareholders, including UC Rusal. Obviously, the recovery in the metal prices during the year enabled the management and shareholders to find a more optimistic approach to this issue. The payment of the interim dividends in the amount of 50% of the expected sum for the year may also be connected with the fears of the shareholders about the exchange rate fluctuations, Mr. Donskoy and Oleg Petropavlovsky of BCS assume. Key shareholders of Norilsk Nickel own ADR on the company's shares, the payments for which are made in dollars at the exchange rate on the settlement date, and in 2014-2015 the ruble volatility sometimes played against the owners of Norilsk Nickel.