Kazakhstan’s state-owned oil and gas company KazMunayGas has raised the offer price to minority shareholders at its London-listed upstream arm KazMunaiGas Exploration Production (KMG EP) as it seeks stronger control over the well-heeled subsidiary.

Kazakhstan watchers suggest the move is driven by the national company’s need to service and pay its vast debts, standing at $10.7bn at the beginning of 2016. KMG EP is sitting on a cash pile of more than $3bn. KazMunayGas (NC KMG) has repeatedly denied it is seeking to buy out all minorities insisting it does not seek to significantly increase its 58% stake in KMG EP.

The sweetened offer comes in response to feedback from minority investors in KMG EP. The Kazakh company is now offering $9.00 per global depository receipt, up from $7.88 per GDR in the original buyout offer, the company said in a statement. The offer represented a 12.4% premium to closing price of $8.01 on July 13.

NC KMG made the offer as part of a broader proposal to amend KMG EP's charter and an agreement governing the relationship between the two companies. The share purchase offer is conditional on the approval of those amendments, to be voted at an extraordinary shareholders meeting scheduled for August 3.

NC KMG also said it would amend its proposal so that it will not have a veto over future nominations of KMG EP independent non-executive directors. KMG EP, which was floated 10 years ago, enjoys a high degree of autonomy thanks to the presence of three powerful independent directors on its board. The independent directors, however, are opposing the changes proposed by KazMunayGas saying they “undermine the corporate governance of the company” and “weaken the protections afforded to independent shareholders”. Despite the increase in the purchase offer, the independent directors continue to believe it undervalues the company, they said in response to KazMunayGas’ new offer. The directors continue to urge shareholders to vote against the proposed changes and reiterated they will resign if the amended proposals are approved.

NC KMG decided to drop the veto power proposal after a meeting China’s sovereign wealth fund CIC, which is the largest minority shareholder in KMG EP with an 11% stake, NC KMG chairman Frank Kuijlaars told the Financial Times.

Whichever way CIC casts its ballot on August 3 is very likely to determine the outcome, analysts at Sberbank CIB said in a note on July 13. “CIC's undiscounted breakeven price for its investments in KMG EP - meaning the price paid for the shares in 2009 net of received dividends since then - is $13.1 per GDR,” the analysts say, suggesting the Chinese state-owned company will be realising a loss by accepting NC KMG purchase offer. “Given this, there seems to be no incentive for CIC to vote in favour.”