8 Nov 2023 12:05

Nornickel says comfortable net debt/EBITDA level is 1.5x not 2x in current situation

MOSCOW. Nov 8 (Interfax) - Norilsk Nickel considers the comfortable tax burden during the current unavailability of Western financing and high interest rates to be 1.5x, not 2x, which was previously the benchmark for the industry, Nornickel Investment Banking Relations Director Mikhail Borovikov said during a webinar organized by Aton.

"We have historically always said that anything below 2x would be comfortable for us. This is a benchmark for our industry. The situation has changed now, and the cost of borrowing has increased dramatically. A company could previously issue Eurobonds or attract loans at a rate of 4% in dollars. This is not available now, and having high debt has become expensive," Borovikov said, noting the ongoing rise in costs for servicing debt.

"I would prefer debt lower than 1.5x rather than lower than 2x under these conditions. The current level of 1x is comfortable and allows the company to pay dividends," Borovikov said.

Leverage and stable free cash flow are the two key metrics when assessing dividends, he said.

The board of directors on November 3 recommended that shareholders approve a dividend of 915.33 rubles per share with dividend yield of around 5%, or $1.5 billion in total at the current rate. Borovikov said the dividends would probably be paid in January.

A return to dividend payments after the decision not to pay final dividends for 2022 was prompted by a reduction in working capital, by 20% in the first half of the year, thanks to which Nornickel returned with a consistently positive free cash flow, which amounted to $1.3 billion, Borovikov said.

"We have said repeatedly that dividends depend on the company's ability to generate free cash flow. Our goal has never been to sit and accumulate cash flow on the balance sheet, so we are sharing it with shareholders," he said.

Management continues to focus on free cash flow as the basis for calculating dividends, and not EBITDA, as was stipulated by the shareholder agreement that lapsed in early 2023, he said.

How much is paid - 75% or 100% FCF - is decided by the board of directors, based on sales prospects, investments and new risks facing the company. One of them, for example, was export duties, which will put further pressure on FCF, Borovikov said.

Drafting a new dividend policy that would allow investors to predict the size of payments is no longer relevant, he said. "It is rather strange to talk about this while we are in conditions of extreme uncertainty," he said.