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Transneft Opposes Increasing Dividend Before 2015, RenCap Says

May 18, 2012

OAO Transneft management opposes increasing the Russian oil pipeline operator’s dividend payouts before 2015, according to Renaissance Capital, a Moscow-based investment bank.

Transneft will seek to keep its current dividend policy during the period because of the investment needed to finish pipeline construction projects, RenCap analysts led Ildar Davletshin wrote in note today, citing company First Vice President Maxim Grishanin.

“It is possible that investors may not see any positive changes for quite some time,” the analysts wrote after a briefing yesterday with Grishanin. The final decision on dividends depends on the government.

President Vladimir Putin has pushed the state-owned company to expand export capacity, including Russia’s first pipeline from Siberia to Asia Pacific markets and a link to the Baltic Sea that bypasses Belarus, a transit nation for supplies to Europe. Russia, the world’s largest oil producer, has raised output by over 57 percent since Putin took office in 2000.

Transneft plans to reduce spending to 107.6 billion rubles ($3.4 billion) this year from 152.5 billion rubles in 2011, according to an investor presentation posted on the company’s website. The company plans to finish the second phase of the East Siberia-Pacific Ocean, or ESPO, link, which is being extended to the port of Kozmino this year.

Paying Debt

Transneft will spend $1.5 billion this year paying down debt used to fund projects, Grishanin said yesterday. The company isn’t seeking additional increases to transit rates, its main source of revenue, this year and expects annual increases of 5 percent for the next three years, he said.

The pipeline operator plans to continue paying 10 percent of net income based on Russian accounting standards as dividends on preferred shares, and 15 percent on common shares, all of which are state owned. The Economy Ministry proposed requiring state-run companies to pay 25 percent of net income, possibly under International Financial Reporting Standards, the Vedomosti newspaper reported in March.

Transneft opposes a plan for the state to sell a stake, saying the government’s sale of a 3 percent of its shares would violate loan covenants with China, Grishanin said.

China agreed in 2009 to lend $10 billion to Transneft and $15 billion to OAO Rosneft, Russia’s largest oil producer, in return for a 20-year supply agreement to provide 300,000 barrels a day of crude. Transneft made Russia’s first pipeline deliveries of oil to China via a spur from ESPO on Jan. 1, 2011.

To contact the reporters on this story: Jake Rudnitsky in Moscow at; Stephen Bierman in Moscow at

To contact the editor responsible for this story: Will Kennedy at

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