The Ukrainian Government proposes to oblige companies of all forms of property to pay dividends in the amount of at least 30% of net profits for the reporting year and/or retained earnings. The corresponding norm is contained in the Government's draft state budget-2010, registered in the Verkhovna Rada on Tuesday. This initiative is aimed to protect minority shareholders. The government already sets standard norms of dividend pay-out from net profits of the state-controlled enterprises on an annual basis.
If the initiative is approved and implemented it could become a significant driver for the Ukrainian equities. We estimate that traditionally very few Ukrainian companies have paid dividends. However, it is not exactly clear in which way the government can oblige private companies to keep up with the minimum pay-out ratios other then in the form of recommended norms as in the end the decision about dividends is taken by the shareholders. We believe the initiative may encounter protest from the opposition party which controls much of Ukraine’s large industrial assets, including the steel mills, which have been famous for their low transparency. It could also create potential incentives for increased transfer pricing and other profit minimizing schemes.