FUNDS: Eurasia Capital connects dots with China move

By bne IntelliNews July 16, 2009

Clare Nuttall in Almaty -

From its Central Asian origins, Eurasia Capital is reaching out across the former Soviet Union and beyond with the launch of an office in Beijing and a beefed-up presence in Moscow, as it aims to become the first pan-regional investment bank. It is also exploring new frontiers closer to home, with an office in Turkmenistan planned.

Eurasia Capital's chief executive, Alisher Ali Djumanov, points to the mounting evidence of Chinese companies' interest in resource-rich Central Asia. One of the region's largest infrastructure projects is the multi-billion-dollar Central Asia-China gas pipeline running from Turkmenistan through Uzbekistan and Kazakhstan to Xinjiang then on to central China.

Majors including PetroChina, Sinooil and CNPC are already active in the region, and Zijin Mining is on its way. Helping Kazakhstan through the economic crisis, and at the same time cementing relations with its neighbour in the energy sector, China also signed a $10bn "loan-for-energy" agreement in April.

Interest isn't limited to Central Asia's largest economy. In June, China agreed to lend Turkmenistan $3bn for the commercial development of the South Yoloten gas field. National oil companies from the Pacific Rim countries are also targeting Uzbekistan - CNPC and other Chinese companies, Korea's KNOC, the Japan Oil, Gas and Metals National Corporation (JOGMEC) and Malaysia's Petronas. "Unlike Kazakhstan, Uzbekistan does not have many major listed companies for takeover, but M&A and [foreign direct investment] activity is quite robust, especially in the resources sector," Djumanov tells bne.

While the energy and mining companies are there, bankers and advisers have not yet followed in their footsteps, Djumanov says, explaining the rationale behind Eurasia Capital's move to Beijing. "There had been a significant effort by the Chinese government and state-owned companies, which are spending an increasing amount on existing resources in Kazakhstan, the other Central Asian republics and Mongolia," he says. "However, there is not so much awareness on the part of the investment banking community in China. There is a disconnect between the activities of major companies and other companies interested in expanding here, and the advisory firms. We would like to bridge the gap and we hope we will be successful."

Eurasia Capital has recruited three locals to its Beijing office, and Djumanov travels there frequently. "We have set up a new office in Beijing that will advise Chinese companies on projects in Central Asia, Russia and Mongolia. We are putting together a full team of corporate finance specialists and investment bankers."

He also plans to start publishing research in Chinese. "We plan to introduce Chinese investors to regional projects, to help them access existing opportunities in Kazakhstan, Mongolia and the other countries where we operate. We now have a team of 30 people in the region. We are also expanding in Moscow, where we are working with major Russian companies."

Russian in

There has also been a spate of Russian deals in Kazakhstan in recent months - Polyus' acquisition of KazakhGold, ARMZ's investment in Uranium One, and the Orsu Metals/Polymetal deal.

The story with Russia is somewhat different; with their shared history and lingua franca, the Russian investment community is much more alert to opportunities in Kazakhstan and to a lesser extent the other Central Asian republics. Russian investment banks Renaissance Capital and Troika Dialog are already in Central Asia. "They provide links between Russia and Kazakhstan, but no one is building bridges between Central Asia, China and Russia. What we are doing is without precedent," Djumanov says. "We believe there is a very strong rationale to build a pan-regional advisory business."

At the same time, Eurasia Capital is filling in the dots in its Central Asian coverage, with plans to open a new office in the Turkmen capital Ashgabat. "Last year, Mongolia was the last frontier for us. We successfully built up our business there. We are now looking for the next last frontier, in Turkmenistan."

Djumanov admits there are obvious obstacles to doing business in Turkmenistan, including the challenge of getting visas. However, he believes strongly that popular perceptions of the country as a completely unsuitable place to do business are unfounded. "Turkmenistan's actual track record includes one of the high-profile success stories among independent oil and gas companies - the sale of Burren Energy to Eni for $3.5bn. This netted earlier portfolio investors returns of up to 30 times their original investments," he says. Another Turkmenistan-based listed company, Dragon Oil, is widely expected to follow in Burren's footsteps at some point.

Helping the country appear on the investment radar was last year's comprehensive audit by British consultancy Gaffney Cline & Associates of Turkmenistan's hydrocarbon resources, revealing the country has some of the world's largest untapped gas reserves. EU governments and gas companies are wooing Ashgabat in the hopes of securing some of this gas for the Nabucco pipeline.

Meanwhile, Eurasia Capital is building up its brokerage business in its existing markets, aiming to become the largest brokerage in Mongolia by market share by the end of this year. Despite the lack of transparency in the Tashkent stock exchange, the firm also plans to develop a brokerage business in Uzbekistan. Although there has been an exodus from emerging and frontier markets on the part of international investors, Djumanov is confident that in the longer term they will return to Central Asia. "Frontier junior resource companies did not participate in the recent rally, which has benefited mainly large caps. But their fortunes will return," he says. "We have shares in a dozen or more junior resource companies across the region. We therefore have the capacity and the resources to help them weather the storm."

Eurasia Capital's other main ambition for the next year is to list on the Singapore stock exchange. "This will give other international investors exposure to frontier markets through investing in our firm," he explains. "We believe in the Central Asian and Eurasian region. It's very much about natural resources, and largely untapped, therefore people will come back and will find opportunities to get exposure to the market. The next wave of money to frontier markets may not come in the next one to two years, but we believe it will arrive."

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