Public companies will be required to disclose data on their dividend policy

The White House and the Bank of Russia intend to introduce the obligation of public joint-stock companies (PJSC) to disclose data on their dividend policy – the draft law was prepared by the Ministry of Economy. The initiative does not oblige companies to pay dividends, but increases their predictability, which should reduce investors’ risks and increase their interest in the stock market. The authorities expect to attract private money to the market: there is not enough equity capital in the Russian Federation. Since 2022, companies have limited the publication of reports important for investors due to sanctions risks, and it has not been possible to return transparency to this sector.

The Ministry of Economy proposes to amend the law “On joint-stock companies” (208-FZ) in order to increase the transparency of the dividend policy of public joint-stock companies (PJSC). According to the project, from 2025, PJSCs will have to approve and disclose their dividend policy and be guided by it when making decisions on payments. The dividend policy itself should contain data on the procedure for determining the amount of dividends for shares of each category, the frequency of their payment and the factors affecting the distribution of profits. If the meeting of shareholders deviates from such a policy, then the decision will need to be justified.

The project of the Ministry of Economy was developed in the development of the “road map” for the formation of affordable finance for investment projects (approved by First Deputy Prime Minister Andrey Belousov and Head of the Central Bank Elvira Nabiullina on May 13, 2021). Then the authorities were preparing to support the planned investment boom with new tools (see Kommersant dated March 22, 2021). After the loss of access to foreign capital, the need to develop the domestic market only increased. So far, the Ministry of Finance notes a decrease in the interest of Russians in investing, and the Central Bank notes an insufficiency of equity capital. Now, on average, about 33% of the shares of companies are in free float (on the exchanges of other countries 50-80%): increasing this share by each company in the Russian Federation to 35% could attract 3 trillion rubles, and up to 50% – up to 7 trillion rubles.

The annual volume of dividend payments by Russian companies, according to experts, is about 4-5 trillion rubles. Disclosure of data on dividend policy can ensure the predictability of payments and increase the interest of citizens in PJSC securities. “The dividend policy directly affects the investor’s choice of one or another public company when purchasing securities. Companies that consistently pay dividends attract the attention of a larger number of investors, which leads to an increase in the value of the shares of such public companies,” said Ilya Torosov, First Deputy Head of the Ministry of Economy. Lawyers support this view. Forward Legal lawyer Lyudmila Lukyanova believes that the initiative can raise the standards of the stock market and its attractiveness, as it will allow investors to understand the return on potential investments and encourage them to invest in shares. Alexander Panin, managing partner of PB Legal, notes that investors invest in shares based on the “goodwill of the issuer” – the law does not provide for the obligation to pay dividends, and minority shareholders cannot influence the decision-making on it. “The bill strikes a balance in this regard: it does not interfere with the discretion of the company’s bodies, does not establish a strict obligation to pay dividends, but requires the company to set its own discretion in advance,” he adds. Mikhail Fedorov, founder of the Quality of Solutions consulting company, adds that the draft law will most likely not have an impact on the position of the societies themselves, except for some reduction in flexibility, but the societies will be able to adjust, since the law will enter into force only in 2025.

Disclosure of dividend policy is one of many conditions for increasing investment predictability. The main barrier remains the closure of company accounts due to the risks of sanctions. The Central Bank has repeatedly called for a return to its disclosure, but so far it has obviously failed to balance the interests of investors and the needs of issuers in protection from sanctions.

Diana Galieva