Minority shareholders of Surgutneftegaz, who are against the dividend policy of this company, have moved from words to deeds. The Swedish fund Prosperity Capital Management intends to use the court to force Surgutneftegaz to increase dividend payments on preferred shares several times.

"We intend to challenge the clause in the Surgutneftegaz charter, according to which the board of directors has the right to set the amount of net profit used to calculate dividends on preferred shares at its own discretion," says one of the directors of Prosprerity Capital Management, Alexander Branis. "We also want to challenge the correctness of the calculation of the company's dividends for 1999. The corresponding claim has already been filed with the Arbitration Court of the Khanty-Mansiysk Autonomous Okrug and will be considered on March 20." Prosperity Capital Management believes that Surgutneftegaz artificially understated the amount of profit used to calculate dividend payments. According to the results of 1999, the company's profit after taxation amounted to more than 30 billion rubles. And investors hoped that 3 billion rubles would be transferred to payments to owners of preferred shares. But Surgutneftegaz paid only 660 million rubles. "They excluded capital expenditures from the profits that were used to pay dividends. We think that this is not consistent with accepted business practice," Branis says.

A representative of Surgutneftegaz told Vedomosti yesterday that his company disagrees with Prosperity Capital Management's claims. "We believe that dividends for 1999 were calculated in accordance with current legislation," he said.

In the summer of 1999, the Finance Ministry issued a regulation requiring companies to include capital expenditures in net profit, but it only went into effect on January 1, 2000. A Surgut spokesman did not say whether his company would use the Finance Ministry's instruction when calculating profits for 2000. "A decision on dividends for last year has not yet been made," he noted.

But Prosperity Capital Management is already worried that dividends will be understated again. According to the fund's calculations, Surgutneftegaz's net profit this year will be $2.5 billion, and preferred shareholders can expect to receive more than $250 million in dividends. "But in reality, the company will pay less, as usual," Alexander Branis reproachfully suggests. He says that Prosperity Capital Management filed the lawsuit alone "because it is technically easier," but the Investor Protection Association supports his fund's position.

"Of course, Surgutneftegaz's dividend policy worries all of its private shareholders," ATON analyst Steven Dashevsky comments on the Prosperity Capital Management lawsuit. "However, it seems to me that serious results should hardly be expected from legal proceedings with the company." According to Dashevsky, the Finance Ministry's instruction on the procedure for calculating net profit is not supported by any laws. "And if so, Surgutneftegaz will insist that it is advisory in nature and is not mandatory for execution," Dashevsky believes. "It will be extremely difficult to prove the opposite in court." At the same time, he believes that lawsuits from minority shareholders will force Surgutneftegaz to make some kind of compromise. "It is unlikely that they will revise the dividends for 1999, but based on the results of 2000, investors may receive more than usual," says an analyst at ATON. "Although we still recommend that clients who are aiming to receive dividends pay attention to the shares of LUKOIL, Sakhalinmorneftegaz and Udmurtneft."

Ivan Mazalov from Troika Dialog thinks differently. "I think Surgut is unlikely to change its dividend policy before the preferred shares are converted into ordinary shares, and this will not happen anytime soon," says Mazalov. He believes that even the noisy scandal surrounding Surgutneftegaz dividends will not seriously affect the market for its shares. "This is Russia. There are not many securities here in which you can invest funds, and all issuer companies have their own shortcomings," says Mazalov.

Investors have already been upset with Surgut once before - last year, when the company consolidated its shares. One of the participants in the conflict between minority shareholders and management was the current plaintiff - Prosperity Capital Management. The shareholders were not satisfied with the share exchange scheme proposed by the company's management and the fact that it refused to discuss alternative options proposed by investors. The case did not reach the courts then, and at the shareholders' meeting the "protesters" failed to block the scheme proposed by management. As a result, most shareholders were satisfied with the exchange ratios and the scandal died down.

Shareholders are suing Surgut