(Bloomberg) — Russian metals exporters that are piling up cash after the ruble collapse are sharing the wealth with investors as the economy tilts into recession and global demand slows.
The weaker ruble has benefited Russia’s resource companies, which have costs in the national currency and revenues in dollars or euros. OAO Novolipetsk Steel, OAO GMK Norilsk Nickel and four other of Russia’s largest metals and mining companies together held $8.3 billion in cash and equivalents at the end of December, according to data compiled by Bloomberg. They had about $5.7 billion a year earlier.
Companies are using the windfall to reward shareholders, switching focus from debt repayments or investments. Prices for major materials have softened as China’s economic growth slowed last year to the weakest since 1990. Russia is sliding into its first recession in six years, as U.S. and European sanctions add to slowing consumer demand and a slump in oil prices.
“It makes no sense to start large investments now, and it’s better to pay excessive cash to the owners,” Kirill Chuyko, head of equity research at BCS Financial Group, said by phone on March 31. “The cost of capital for Russian companies increased, which also makes companies rethink their dividend policies.”
Returning Capital
Steel and nickel prices fell more than 20 percent in the past 12 months, while copper has dropped about 9 percent. At the same time, Russian producers have turned into world leaders in terms of profit margins and cost cutting. The ruble plunged 46 percent last year before stabilizing in the first quarter, while the economy is forecast to contract 3 percent this year.
Novolipetsk Steel, known as NLMK, said this week it’s overhauling its dividend policy. The steelmaker, which cut its debt ratio to among the lowest in the industry last year, may double distributions and is adding free cash flow as a basis for its payouts.
“In the coming years, we are well positioned to start returning capital to our shareholders,” Chief Executive Officer Oleg Bagrin said Monday.
Dividends on this year’s profit may jump to $325 million to $472 million, according to Deutsche Bank AG estimates.
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