UPDATE 2-Russian mobile firm Vimpelcom slashes dividend, spooking investors

Tue Jan 28, 2014 11:46am EST

* Shares slide 13 pct after company says to slash dividend

* Annual payout cut to 3.5 cents per share, from guidance of 80

* Firm has spent heavily on acquisitions; share price drops 13 pct

* Russian rivals MTS, Megafon still pay high dividends

By Megan Davies and Maria Kiselyova

MOSCOW, Jan 28 (Reuters) - Vimpelcom, Russia's third biggest mobile operator, said it would slash its dividend to pay down debt piled up in an aggressive expansion drive, marking an unexpected policy shift that spooked shareholders.

Vimpelcom's expansion into Africa, Asia and continental Europe left the group with more than $20 billion in debt, according to its latest quarterly results. [ID nL5N0IR0PC]

To bring down its debt ratio, it will cut its annual dividend payout to 3.5 cents per share from 2014, it said in a statement on Tuesday - a tiny fraction of the prior guidance for at least 80 cents.

Vimpelcom's ADRs opened 13 percent lower at $10.14 in New York, where it is listed on Nasdaq.

"The market had not expected that the company would cut dividends and cut that significantly," said Anna Lepetukhina, analyst at Sberbank.

"The reaction is understandable. It means that of the big three (Russian) telecoms groups, Vimpelcom stops being a dividend story."

However, Lepetukhina also said the move was understandable given difficulties the firm faces with its operations in Italy and Algeria.

Competitor MegaFon launched a bout of dividend hikes among Russia's Big Three operators - also including MTS - when it floated in London in late 2012.

An equity salesman in Moscow earlier recommended his clients sell Vimpelcom with a $10 target price.

"The Vimpelcom story was based on the dividend and now that is off the table. This is a big blow to the company's credibility," he said.

OWNER FLUSH WITH CASH

In a statement released as the firm spoke to investors in London, CEO Jo Lunder said the firm continued to offer "an attractive combination of mature, strong cash-generating businesses and solid emerging market growth opportunities."

But its African and Asian businesses have been hurt by regulatory pressures while its Italian unit has been hit by reduced fees that its can charge rivals to use its network.

Vimpelcom has also been in drawn-out negotiations with Algeria's government over selling its stake in its Djezzy unit. Algeria wants to nationalise the business, which is the jewel in the crown of assets Vimpelcom bought in 2010.

For 2013 Vimpelcom announced an interim dividend of 45 cents per share. The company, in which billionaire Mikhail Fridman's Alfa Group has a 56 percent economic share, said it would not pay a final dividend for 2013.

Fridman and his partners are flush with cash from the sale last March of their stake in oil firm TNK-BP, which was bought by state oil major Rosneft for $55 billion. That means he may be less focused on dividend streams than Vimpelcom minority shareholders.

Vimpelcom said it would keep its new dividend policy in place until it has a net debt to EBITDA ratio of under 2 times. It aims to cut the ratio to about 2.3 by the end of 2014.

It also expects revenues and EBITDA in 2014 to be stable year over year.