The privatization of Spain's lottery, the Sociedad Estatal Loterías del Estado (SELEA), will be guided by its dividends policy. The company has agreed to offer a shocking 12 payments starting after the October IPO. These are a treat for investors, yet they could balk at minimum commissions that go along with each dividend payment.
To prevent significant reductions to final shareholder dividends, the company has negotiated with lenders to try and cut or eliminate the minimum commission charged on each dividend.
As the policy stands, for each dividend a shareholder will pay a financial tax (currently between 19-21%) and management commission, which is withheld by the lender who finances the deal. While normally the commission is a certain percentage value above the net dividend, this dividend comes with a set minimum rate. In fact, it is common for small shareholders to take on the cost of this minimum charge. Loterias is trying to jump through some hoops so that the dividend look less attractive than before and the small investor can go after his potential gains without the set minimum commission. The deal is ending up that way, which would cause a huge inconvenience that affects the non-institutional investor most.
According to sources familiar with the deal, SELEA has spoken with some big banks to figure out if this novel form of remuneration, that in principle is more attractive than the shares themselves, does not end up being a handicap for small investors.
The total cost that the shareholder would have to pay is higher if the the dividend is administered in 12 separate payments, considering that he would have to pay a minimum commission on each dividend. For example, for someone who has invested 1,000 euros and is required to pay the minimum commission of 0.60 euros per share (a main Spanish lender pays this rate currently), the shareholder would earn 4.46 euros per share per month in dividends. But if the minimum commission were eliminated, the penalty on dividends would only be 0.25% commission. So the investor would then earn 5.05 euros per share.
Another of the company's objectives is to go public with a valuation of at least 21 billion euros, according to a statement made in April by company president Aurelio Martínez. Meaning this figure would have to be increased to 23-25 billion euros.
Possible means of growth
A growth story is normally the perfect lure to get investors on board. In this instance, SELAE's stock market story has played out without the company coming up with a clearly defined business strategy. That said, the company is considering the possibility that its growth could be aimed at online gaming and technology and by attracting more players with bigger jackpots.
