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OAO GMK Norilsk Nickel, the world’s largest nickel and palladium producer, plans to distribute excess cash to shareholders, said Chief Executive Officer Vladimir Potanin in an interview to Bloomberg.

“We see it as excessive if cash on the balance sheet is higher than $1 billion,” billionaire Potanin said in an interview in Moscow late yesterday. Anything above that level can be paid as dividends, he said, with management planning to seek board approval as soon as Oct. 31 for an interim payment.

Norilsk has $3.5 billion of cash after reducing working capital over the past two years and selling international assets, Potanin said. He declined to comment on the size of the dividend. Norilsk rose as much as 3.9 percent in Moscow trading.

Potanin, whose Interros Holding Co. owns about 30 percent of Norilsk, became CEO at the end of 2012 as a part of the deal to end a four-year shareholder feud with United Co. Rusal. The parties agreed Norilsk should pay dividends equivalent to half of its annual earnings before interest, taxes, depreciation and amortization or at least $2 billion.

“Judging from what Norilsk management says, we think that Norilsk may pay out up to $2.5 billion of dividends as interim payment, while total payments for 2014 can reach $3.8 billion,” George Buzhenitsa, an analyst at Deutsche Bank AG in Moscow, said by phone today.
Norilsk paid dividends of about $2.2 billion for 2013, after a payout of about $2 billion for 2012.

Shares Gain

Norilsk may distribute the $400 million it received from selling assets in Australia and Africa as a separate special dividend, according to Potanin. Rusal, Interros and billionaire Roman Abramovich’s Millhouse Capital, which has 6 percent stake in Norilsk, agreed on Oct. 18 that the company may delay a $1 billion payment from the sale of non-core and international assets until 2018.

The company will try to make payouts immediately after asset sales and doesn’t plan to keep cash on its balance sheet, Potanin said. Norilsk may put its airline up for sale by the middle of next year, while the company plans to sell its former office in the center of Moscow once the Russian capital’s property market recovers, Potanin said. Norilsk’s stakes in utilities will also be gradually sold, he said.

Norilsk climbed 3.8 percent to 7,435 rubles as of 2:29 p.m. in Moscow.

Buyback Considered

While Norilsk shares have climbed almost 36 percent this year, they trade with a 20 percent discount to global peers, according to Morgan Stanley. (MS) Norilsk decided paying dividends was a better option after considering buying back shares because the company is undervalued, Potanin said.

“We were considering doing a buyback to support our market capitalization, but decided that dividends is more clear way of profit distribution for our investors and it is more comfortable for the state in terms of taxes,” he said.

Rusal, which owns 28 percent in Norilsk, said before the shareholder agreement on dividends was extended last week by one year to 2018. Rusal, Interros and Millhouse also extended the duration of their agreement on Norilsk’s investment program to 2018, Potanin said.

The investors approved $12.5 billion of spending over a six-year period starting in 2013, he said. The accord originally covered three years, which didn’t match the Norilsk’s asset restructuring program.

“The annual capex target by 2018 will be $2 billion, but the management has the right to delay some of the spendings to the later periods,” Potanin said.

Norilsk doesn’t plan to cut debt after refinancing in the first quarter, said Potanin, adding that borrowing costs are still low. While the company doesn’t expect its access to international funding markets to be limited in future, Norilsk is in talks with Asian and Chinese banks over loans, he said.

Photographer: Andrey Rudakov/Bloomberg