Kyivenergo to pay enormous dividend, if DTEK helps

The shareholders of state utility company Kyivenergo (KIEN UK) voted at their April 22 AGM to distribute UAH 713 mln (30% of the company’s 2012 income) in dividends, or UAH 6.58 per share. That implies a dividend yield of 77%, based on last deal price, or 53% yield based on offer price.

Kyivenergo asked the holder of a 72.4% stake, DTEK (DTEKUA), to help provide UAH 197 mln to pay dividends to minorities (which together hold a 2.6% stake in the company) and the state (25%). Kyivenergo indicated that it has no free liquidity to pay dividends, and its record-high 2012 profit (UAH 2.38 bln) was gained solely by receiving a state subsidy, the proceeds from which were immediately directed to repay Kyivenergo’s debt for natural gas supplies.

Alexander Paraschiy: In announcing the dividend, Kievenergo stated its shareholders had no choice but to approve the distribution of 30% of its income, since it’s required by the law (as the state is among its shareholders). We are slightly surprised by the decision – Kyivenergo’s profit indeed was due to a subsidy from the state budget, which the company received in the amount of UAH 3.38 bln in 2012 (by our estimate).

The state, therefore, will receive UAH 178 mln (5% of the subsidized funds) back in the form of dividends, effectively imposing an additional tax on the company. We do not believe Kyivenergo will pay generous dividends in the next year, as it is unlikely to receive large compensation from the state budget in 2013.