TMK is not in hurry to increase dividends

Nadezhda Ivanova's picture

TMK of Dmitry Pumpyansky is ready to pay the final dividends for the year, which it didn’t do for the past three years, but is not going to increase the base of the payments. In the opinion of TMK, the market shouldn’t perceive it as a steel company (the dividend yield of Russian metallurgists is about 10% per annum against 2% for TMK). For investors, TMK is primarily an opportunity to earn on reducing the company's debt, analysts note, but for a while its debt load is growing.

TMK for the first time since 2014 can pay the final dividends: on results of 2016 the company made the net profit in the amount of $166 million against the loss of $368 million a year earlier. According to deputy general director of TMK for strategy and development Vladimir Shmatovich, taking into account this, the company "will still pay the dividends," but it will approach the issue "in a balanced, economical way," since the debt reduction remains its priority. Before that, TMK paid only interim dividends: for the first six months of 2016 - 2 billion rubles, for the first six months of 2015 - 2.4 billion rubles.

The dividend policy of TMK assumes the payment of at least 25% of its profit under IAS, and it is not going to be reviewed, Mr. Shmatovich said. MMK of Victor Rashnikov, for example, is guided by payments from its free cash flow since 2014. The same indicator is in the base of the dividends calculation of Norilsk Nickel and NLMK. In 2016, the TMK’s free cash flow was $395 million, but the company had to pay $258 million interest on loans. "There is a cliche that steel companies pay dividends, and good ones, but we are more of an oil and gas company," - Vladimir Shmatovich said. The yield of Gazprom is about 5%, Lukoil’s one is 7%.

The financial indicators and dividend potential of TMK are still influenced by the consequences of the purchase of the US IPSCO together with Evraz in 2008-2009, says director for metallurgy and mining of Prosperity Capital Management Nikolai Sosnovsky. TMK spent $1.7 billion of borrowed funds, and the US division is loss-making since 2015, and in 2016 its EBITDA was minus $72 million. At the end of the year, the TMK's total debt was $2.9 billion, the net debt was $2.5 billion, but for the year it repaid only $53 million of the debt body. If TMK didn’t attract debt for the purchase of the plants in the USA, it could provide the dividend yield comparable to the Russian metallurgical companies in the amount of 10% (now - 2%), Mr. Sosnovsky says. The Kommersant’s sources said earlier that TMK didn’t rule out the sale of the assets in America, but in autumn of 2016 the company stated that for a while it wouldn’t sell them and expected that "in 2017, TMK IPSCO will earn the positive EBITDA". Yesterday, TMK noted that "the American division has passed the bottom of the crisis".

In February, TMK held an SPO, during which VTB sold 13.4% of the company's shares for 10.4 billion rubles. 80% were bought by foreign investors. They were attracted not so much by dividends, as by "the successful positioning of the company on the markets of its operation", says Vladimir Shmatovich. According to Mr. Sosnovsky, those investors invest in TMK, who are counting on the growth of its value from the debt reduction in the next two years due to positive changes on the pipe market (rebound of the oil prices and demand from drilling companies, growth in the infrastructure demand in the USA). "In the case of credited companies, the cost of equity increases significantly even with small improvements in their financial results," - the expert explains. "The TMK's investment history is including a reduction in the debt burden, and the dividends are perceived by the market ambiguously," - agrees Andrei Lobazov of Aton (SPO bookrunner). TMK targets the debt of 2.5 EBITDA, but for a while the debt load grew to 4.8 adjusted EBITDA against 3.8 at the end of 2015.

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