Kazakh sovereign wealth fund Samruk-Kazyna elaborates on privatisation programme

By bne IntelliNews November 19, 2015

Umirzak Shukeyev, head of Kazakhstan's sovereign wealth fund Samruk-Kazyna, disclosed details of a programme to privatise state-owned assets at an expanded government meeting on November 18.

According to Shukeyev, the programme assumes the sale of at least 25% stakes in 43 large state-owned enterprises via initial public offerings in 2016-2017. The list includes stakes in oil and gas company KazMunayGas, uranium miner Kazatomprom, railway company Kazakhstan Temir Zholy and gold mining firm Tau-Ken Samruk. The latter owns a 30% stake in Glencore-controlled zinc miner – Kazzinc. Moreover, KazMunayGas Processing and Marketing will be privatised with all the refineries and petrol station chains.

The programme was ordered by Kazakh President Nursultan Nazarbayev in 2014 but since then its realisation has been sluggish. The current economic difficulties caused by the low price of oil, the main commodity exported by Kazakhstan, has prompted the government to increase efforts to privatise state-owned assets in order to raise additional funds. Therefore, the privatisation programme was expanded and it was widely advertised during recent visits by Kazakh President Nursultan Nazarbayev to London and Paris.

As part of the programme a merger of two state-owned pipeline operators KazTransGas and KazTransOil into one company is also planned. Shares of KazTransOil that were issued during the so-called “People’s IPO” should be transformed into shares of a new merged company, according to Shukeyev. No timeframe for this action was provided. At the same time, Shukeyev declared that gas trading activities would be concentrated in a separate company. He also revealed that after the merger, Batumi Oil Terminal and Kazmortransflot would be privatised.

Moreover, the fund wants to privatise non-core assets through auctions over the same period. The number of subsidiaries will be reduced from 206 to 75 at KazMunayGas, 103 to 32 at Kazakhstan Temir Zholy and to 38 from current 82 companies at Kazatomprom.

Major assets are expected to be sold to strategic partners via IPOs and SPOs by January 1, 2018, using what would be an "international financial centre" in Astana. Other assets are to be auctioned off or sold directly to private investors. Companies wholly owned by the government will offer a controlling stake of 25% to 50%-plus-a-share.

Speaking about possible revenues form privatisation programme, Shukeyev cited a figure of KZT2.5tn (€7.5bn). However, he noted that it was a book value and he expects that figure to be higher.

At the meeting, Nazarbayev urged wealthy Kazakhs to participate in the privatisation programme. He also criticised ambassadors and demanded they increase efforts to attract foreign investors to the country.

The privatisation programme exposes the weakness of Kazakhstan’s economic model, which is unsustainable in the conditions of the low oil price. The sale will decrease the state’s involvement and improve management in the privatised companies. The negative effect is a possible downgrade of the companies’ ratings in the long-run as they will be deprived of the government’s support, Fitch noted in its recent report.

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