Russian tycoons collect $11 billion in dividends thanks to war economy boom | World News

Billionaires Alexey Mordashov of Severstal PJSC and Vladimir Lisin of Novolipetsk Steel PJSC followed with dividend income of 148 and 121 billion rubles, respectively. Mordashov is subject to US, UK and EU sanctions, while Lisin is not subject to major restrictions.

In response to the invasion in February 2022, the US and its allies imposed comprehensive sanctions on Russia. Fearing a possible economic collapse, many companies suspended dividend payments. However, these fears have not materialized as the Russian economy gradually adapted to the new conditions and exporters found alternative markets.

After a decline in the year after the war began, the Russian economy recovered sharply as the government invested heavily in expanding the defense industry, protecting domestic companies from the effects of sanctions, and providing social support for families.

Gross domestic product grew by 5.4 percent in the first quarter compared to the same period last year. Many commodity exporters have resumed paying dividends after restructuring their companies and redirecting their sales to markets in China, India and other countries in the global south that have not imposed sanctions because of the war in Ukraine.

Many state-controlled companies, such as Gazprom Neft PJSC and Russia’s largest bank Sberbank PJSC, have never stopped paying dividends despite making record profits during the war. Sberbank shareholders last month approved a record dividend of 752 billion rubles for 2023.

Still, Russia’s economy could face significant problems in the second half of the year and in 2025 that could prompt the government to raise taxes, says Chris Weafer, chief executive of Macro-Advisory Ltd. For many business owners, it’s “better to withdraw the money now than risk losing it in taxes next year,” he said.

Companies are facing increasing payment difficulties, which could lead to shortages of industrial components and consumer goods, he said.

Previously, the US had stepped up its threats of secondary sanctions against banks in countries Russia considers “friendly”. Last month, US sanctions against the Moscow Stock Exchange forced it to stop trading in dollars and euros.

The Finance Ministry last month raised its estimate of the budget deficit for 2024 from 1.595 trillion rubles to 2.12 trillion rubles, or 1.1 percent of GDP. With inflation more than double the 4 percent target, the Russian central bank could raise the key interest rate by as much as 200 basis points this month from the current 16 percent.

Another problem for Russian tycoons is where to invest their dividends after sanctions forced many to turn to the domestic market.

In May, private investors invested 116.3 billion rubles on the Moscow Stock Exchange, a monthly record in 2024.

Investments in Russian industry rose 14.5 percent year-on-year in the first quarter to a record nearly 6 trillion rubles, according to Central Bank data. Still, domestic opportunities are limited.

“There are simply too many uncertainties for tycoons to make large investments right now,” especially when they can get high interest rates on ruble deposits from Russian banks, Weafer said. “For most, the wisest course of action is to wait and see.”