Megafon will not pay dividends due to the need to comply with the provisions of the "Spring Law"

The federal telecom operator Megafon has announced that it has refused to pay dividends to its shareholders. Representatives of MegaFon say that the funds saved on dividend payments will be used to increase capital expenditures, including the implementation of the provisions of the “Spring Law”. Immediately after this announcement, the company's shares collapsed on the stock exchange by 9%. At the close of trading the price of one share amounted to 524.9 rubles. During the trading day, the price dropped to 506.1 rubles. Shares of the company fell to a 52-week low.



The decision to refuse to pay dividends was followed by a recommendation from the company's board of directors, RBC reports . “Investments in shares of telecommunications companies are now interesting because they guarantee stable dividends. Therefore, it is quite logical that the market responded with a fall to the failure of MegaFon to pay them in 2018, ”said Konstantin Belov, a senior analyst at Uralsib.



According to analysts of the company, the revenue of MegaFon from communication services, as well as the OIBDA indicator will not differ much from the same indicator at the level of the previous year. Then the revenue amounted to 321.8 billion, and OIBDA - 121.85 billion. The cellular operator is going to significantly increase the total capital expenditures. According to the plan, they will reach the level of 75-80 billion rubles. This is about 40% more than last year.



Experts believe that one of the reasons for the increase in capital expenditure forecast is the company's confidence that neither revenue nor OIBDA will increase. As a result, the flow of free money decreases, and stocks become much less attractive to investors.

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“The key factor affecting the fall in stocks was the rejection of dividends. However, the negative behavior of investors aggravated the fact that for the second year in a row the company's OIBDA remained stable and was not growing. The MegaFon strategy presented in May 2017 dealt with an annual increase in OIBDA by 3-6%. This raises the question of following the stated strategy, ”Sergey Libin, an analyst at Raiffeisenbank, commented on the situation.



One of the main areas where funds will be directed will be the development of LTE-standard networks. In addition, the company's specialists will be engaged in improving communication stability and quality of services. The goal is to reduce the likelihood of network disruptions that prevent customers. For example, last year there were two major failures in the company's network. One of them happened in May, when subscribers of such cities as Moscow, Ufa, Samara, Nizhny Novgorod were left without communication for about ten hours. In June of the same year, the second failure occurred, depriving subscribers of communication for a few more hours.



The implementation of the provisions of the “Spring Law” also requires large investments. This is how the provisions of anti-terrorism amendments coming into force on June 1 of this year are called. According to them, telecom operators and Internet companies are required to keep audio recordings of conversations, correspondence and other types of communication of their subscribers and users for up to six months. Communication data, depending on the type of company, will have to be stored from one to three years. Unfortunately, while the storage period for this type of information is not precisely defined.



Megafon will spend about 8 billion rubles to implement the law. Within five years, it will take the company about 40 billion rubles to implement these provisions. VimpelCom, another federal telecommunications operator, has at least 63 billion rubles, MGTS - 17 billion, and ER-Telecom Holding - 50 billion. Most companies do not intend to raise tariffs to compensate for their own expenses, although this is possible.



“In the context of fulfilling the requirements of the law, we are ready to spend on security, for example, 1% of revenue. If the execution of the law requires more substantial sums, then it is necessary to regulate the size of the increase in tariffs for subscribers, ” said Gevorg Vermishyan, financial director of MegaFon.



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