Ben Aris in Moscow -

Like most things in Uzbekistan, the RFB Tashkent, the Uzbek stock exchange, was set up in 1994 by presidential decree. President Islam Karimov said Uzbekistan needed a bourse to, "deepen economic reforms, guarantee the protection of private property and develop enterprise in the country." Since then, the gleaming stone and glass building in central Tashkent has stood largely idle - until recently that is. Foreign investors are looking now at Uzbek stocks simply because any incoming capital can send valuations skyrocketing. bne talked to Andrey Lee, head of strategic investments department at Veles Capital in Moscow, which plans to offer brokerage accounts to invest in Uzbek stocks by the end of the year.

bne: Uzbekistan's bourse was set up over a decade ago, but nothing much has happened. Are people now starting to buy Uzbek shares?

√ Lee: Yes, and surprisingly, it's not so bad: brokerage companies can trade using electronic trading system, all information about trades disclosed on the website. Moreover, security market legislation is better than in Russia: for example, there is a central custodian and all trades have to be done through exchange.

bne: What kind of companies are listed?

X Lee: Unfortunately, there are not many companies traded on the exchange, but I forecast an increase in the amount of companies traded there. There was privatization in Uzbekistan, that is why many individuals have shares of different Uzbek companies. Sooner or later, these people will come to the exchange to sell shares. Usually, people sell these shares for very low prices. Sometimes, you can buy shares for two annual dividends.

bne: Is there any liquidity?

√ Lee: Yes, there is. The financial sector has a very good turnover, but the rest of the companies do not. In 2000, liquidity on the Russian equity market was not good either, but with time prices go higher, therefore capitalization increases and, finally, liquidity becomes better. The turnover is about $200,000 a day in the financial sector stocks.

bne: How close are the listed companies to international standards of transparency and corporate governance?

X Lee: The level of corporate governance is very low. It means that it's very hard to find financial reports, traded companies have no websites, and most have no special department that is responsible for communicating with shareholders.

bne: What is the free float of the market?

X Lee: Average free float of a company is about 5%.

bne: Are there any foreign investors? I hear some foreigners have invested via their local partners.

√ Lee: I was at a conference in Tashkent several days ago and saw people from JP Morgan, CSFB, and East Capital, among others.

bne: What are the restrictions on foreigners taking money out of the market and out of the country?

X Lee: It is the most unpleasant question, because there is problem how to get money out of the country. As far as I know, you have to put your money on the special account and wait three months until it is transferred.

bne: Do you have other investments in Uzbekistan?

√ Lee: Real estate is interesting for investing, but foreigners can buy only commercial real estate, which is not bad anyway considering that the price is $700 per square metre. We forecast a fair price for real estate in Tashkent of about $2,000 per square metre.

bne: There is talk that the country is opening up to foreign investment. What stage is this process at: start, early, well under way, almost finished?

√ Lee: Almost started...

bne: What are the most attractive sectors for investment?

√ Lee: Electricity, construction sector, oil and gas (taking in consideration current price levels).

bne: What are the main problems a foreign investor must face?

X Lee: The hardest thing is to get money out of the country, but there are also problems with transparency. Although the Uzbekistan authorities created special website for financial reports disclosure, not everything has to be disclosed and sometimes information is incorrect. For instance, I saw two financial reports on the same company that were different. There are many problems of investing in the Uzbek market, but this headache is worth it, because Uzbekistan might be the next Russia, Kazakhstan and Ukraine, where shares grew by hundreds of percent.

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