Russian FX/Rates - Support for Ruble from Exporters' Still-High Annual Dividends

This year, the total dividend payout in May-August will be well below last year's record for Russia as a whole, but the amount paid by exporters will be about the same. In our base case, the dividend-related FX selling, most of which should take place in late July, will exceed the FX buying related to dividends by about $4 bln, though it could be up to $9 bln higher. Thus, we expect the ruble to be well supported in July and appreciate to USD/RUB 70, which we see currently as its fair value. This year, many companies have decided to reduce or delay their annual dividend payments in late May-August. Most notably, Sberbank and VTB have postponed initially planned payments of R400 and R100 bln. Thus, the total volume of dividends paid in May-August this year will be only about R1.4 trln, well short of last year's record R2 trln.However, the volume of dividends distributed by exporters will be almost unchanged at R1.2 trln, as the increases in some companies' payouts (such as Lukoil and Rosneft) will outweigh the decreases (e.g. Gazprom) and cancellations (e.g. Tatneft) of others.Thus, the dividend season will remain an important factor from an FX flows perspective. As we have pointed out in the past, the impact of the dividends on the ruble comes in two stages. First, exporters sell hard currency to pay dividends in rubles. Then, in the second stage, some dividend recipients convert their proceeds into hard currency, most notably doing this are foreign strategic investors and issuers of depositary receipts (for more details, please see our June 2018 note "Dividend Season Kicks Off.")