Clare Nuttall in Almaty -
Investment banking and financial services firm Tengry Finance has been active in the Kazakh market for 12 years. After a buyout in 2008, the firm became the most active investor on Kazakhstan's securities market. It has now adapted its strategy to crisis conditions.
Tengry started life as a subsidiary of CEE-focused investment firm Recent European Securities. But just a year after its launch in 1997, the onset of the Asian crisis resulted in the sale of the company to Kazakh investors. After another change of ownership in May 2008, Tengry rebranded and stepped up its business activities.
Today, Tengry has recruited a young and dynamic team - the average age is just 28 - of around 30 people. Through its partnership with Private Asset Management, the firm provides asset management services to private, corporate and institutional clients. In addition to brokerage and asset management, it also provides a full range of investment banking and research services. "We position our company as a financial institution which provides a full spectrum of investment banking and broker services," says Tengry's deputy CEO, Bakhyt Smekenov. "We became the number one among the 10 most active operators of the securities market. Based on 2008 results, we took the first place on the stock exchange, we took the second place in equity at the stock exchange and we took the third place on corporate bonds."
Tengry's primary competitor in the investment-banking sphere is the banking sector, in particular when it comes to arranging corporate debt such as bond issuances. The current turmoil affecting some of Kazakhstan's biggest banks could create additional opportunities for Tengry and other independent financial houses, allowing them to come to the fore in the same way that Renaissance Capital and Troika Dialog managed it in Russia.
This is not to say the crisis hasn't had a negative effect on Tengry. At first, the firm had been optimistic that the problems in the banking sector after July 2007 would kick-start the stock market. The firm's head of research and risk management Baurzhan Tulepov recalls the time when low interest rates and abundant credit made it illogical for businesses to raise money on the stock market. At that time, Tulepov says, "if we saw any clients, they were those who could not receive credits from banks due to some problems. If there were no problems, they would prefer to go to banks. That is why the stock market has been lifeless in Kazakhstan for a long time."
He warns that the situation among over-leveraged companies is set to worsen. "The corporate sector is in a critical situation in many respects. There are nine defaults already and this tendency will continue," he says. "We have come to the conclusion that half of all issuers will be incapable of making debt repayments. There will be massive defaults in the market."
Hopes that this would stimulate the stock market have been unfounded. "Some actions from the state, especially its intention to seize almost 70% of funds from pension funds, may leave the market lifeless. This raises another problem: there is little money left for the purchase of corporate bonds or other financial instruments, except the government's," Tulepov says.
In fact, he warns, the situation before mid-2007 when cheap loans were being handed out to virtually anyone who applied could be re-created through the government influx of funds into the banking sector. "The state has given large sums of money to the banks and if new credits are issued at cheap rates, then eventually there will not be enough of this money. And there would be a negative impact on the stock market," says Tulepov.
However, there are also some good things to have come out of the crisis. "We can also talk about the positive aspects for our company: increased flexibility - the crisis has taught us some flexibility in our business development strategy. We have adjusted our strategy, adapted our business development policies to the conditions of the crisis," says Smekenov. "Now we are growing, expending our staff."
Another change in direction concerns where the firm is investing. "In the future, our strategy will be primarily associated with purchase of government securities and rejection of corporate bonds and stocks," adds his colleague.
The government-owned companies are also likely to be instrumental in getting the market going again. "I think that the stock market will get more lively and attractive when big national companies enter the stock market," Smekenov forecasts. "For example, KazMunaiGas has around 13 affiliated companies. I expect that they will enter the market soon." The development of public-private enterprises could also stimulate the market, for example the issuance of infrastructure bonds to fund major projects.
In the future, Tengry aims to maintain its position in the market, as well as facilitating access to the Kazakh market for foreign investors, and developing retail services. Both Smekenov and Tulepov believe in the future the market will improve. "Now, any good investors tries to distance form the stock market and refuses to take aggressive strategies. All measures taken at this time to stabilise the economy and the stock market are still somewhat uncertain," says Tulepov. "If you follow the actions of the state, then there it can be seen that strategies are built on the expectation that the crisis will end soon and programmes would be continued."
"The crisis will go away, and Kazakhstan has big advantages. The stock market will grow. All the services we provide now - corporate finance, purchase of various financial instruments - will continue to develop," he says.
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