Dividends Likely Key At Rosneft Meeting

State-controlled Rosneft took steps to appease minority shareholders ahead of Thursday's annual meeting, announcing ambitious growth plans in hopes of staving off protests over the size of dividends.

The country's largest oil company, chaired by influential Deputy Prime Minister Igor Sechin, raised 2007 dividends by 20 percent, but they are still only marginally above 10 percent of profit.

In addition to routine votes on dividends, the annual financial report and the board of directors, shareholders are expected to approve a change to the corporate charter to allow Rosneft to hold annual meetings in several other Russian cities where it has a presence.

"The question of dividends will rise prominently," said Alexei Navalny, a minority shareholder who filed a lawsuit against Rosneft last week to force the company to disclose its relationship with Swiss oil trader Gunvor. He has said the terms of Rosneft's contracts with Gunvor might be the reason why its dividend payments are lower than they could be.

Apparently anticipating a dispute over the dividend, Rosneft released a newsletter for minority shareholders addressing the issue. "The majority of Russian companies don't pay dividends at all, instead spending the entire profit on ... development," said the letter, which will be circulated at the meeting.

Analysts have said the company cannot afford a bigger dividend payout because of its enormous debt and large investment to bring the vast Vankor field in Siberia online. Rosneft borrowed heavily to acquire assets of bankrupt Yukos at auctions last year.

In the newsletter, Rosneft president Sergei Bogdanchikov said the company would not change its dividend policy in the near term, although he did not mention debt, focusing on the need to pour more resources into development.

Under the company's strategy through 2020, Rosneft will produce 170 million tons of oil that year, he said. In the long run, he added, it plans to become the world's third-largest company by market value.

Bogdanchikov also stressed that, because of an oil-stock rally last month, shareholders have seen the value of their investment grow by 30 percent in Moscow and 50 percent in London. The returns, he said, were better than investors would have gotten by keeping their money in a savings account.

Manvelov said the growth figures were since Rosneft's IPO in July 2006, when strategic investors, a handful of international oil majors, including BP, and 115,000 individual Russian shareholders bought a total of 14.8 percent in the firm.

Oil stocks soared last month after Vladimir Putin, on the day he was confirmed as prime minister, backed lower taxes for the industry. The Cabinet Presidium later approved bills to enact the proposed cuts, prompting another rally.

At last year's meeting, shareholders vented disappointment about what they called low dividends in a widely reported setback for Sechin, then deputy head of the Kremlin administration, who made his first public appearance there.

Sechin and Bogdanchikov will both give speeches at the meeting, spokesman Nikolai Manvelov said Wednesday.

Vitaly Gromadin, an analyst at Arbat Capital, said shareholders would remain frustrated over the dividend. "It's not beyond one's wildest dreams, when compared with other companies," he said.