Ben Aris in Berlin -
The top-three player in the Kazakh financial sector Halyk Bank said it will offer 20% of its common shares on the London Stock Exchange, which would make it the second Kazakh bank to tap the international capital markets this year.
The company's largest shareholder is Holding Group Almex, which controls 73.5% of the voting shares, but the decision to float must come as disappointment to the bank's chairman and former governor of the National Bank of Kazakhstan, Grigori Marchenko, who has been trying to sell the stake to a major international bank for more than two years as a first step in his strategic vision for the bank.
The shareholders will be less disappointed, as the IPO is expected to raise more than $600m. Among those shareholders are Dinara Kulibayeva, the president's second daughter, and her husband, a top government official who sits on the boards of both KazMunaiGaz and Samruk. The couple are among the "large shareholders" in Almex, according to the bank.
Halyk began life as the Kazakh branch of the giant Russian savings bank Sberbank and so has a strong foundation in the retail segment. Under Marchenko, Halyk has played to its traditional strengths and concentrated on its domestic business, rolling out products for small businesses and mortgages, as well as building up its retail banking services.
Unlike Sberbank, though, Halyk has been privately owned since 2001. It enjoys a 38% share of the local market in terms of branches, 23% of retail deposits and 27% of pension funds as of the end of the first half of this year.
Halyk also has the highest market share in the payment card business (52%) and ATMs (41%), which makes the bank a natural partner for the government in servicing pensions and other social payments.
A light for small business
The Kazakh bank sector is dominated by three big banks, but all three were wrong-footed by the recent explosion in consumer lending and have had to watch as the smaller, more nimble second-tier banks snatched a big chunk of the market.
Somewhat belatedly, the three big banks have pulled out all the stops to regain their positions in this market, with Halyk credited as being the most innovative.
The bank's "Business Light" (like Marlborough Light, says Marchenko) programme for small and medium-sized enterprises (SMEs) offers loans of up to 7 years within three or four days, providing they have suitable collateral. Some 17% of these loans are made to start-ups.
"What is most important to SMEs is not the interest rate of the loan, but how much you have to pay back each month; our longer-term credits make the loans affordable. Also important is how fast they can get a loan and how simple the procedure is. Interest rates are fourth on this list," Marchenko said in an interview with bne at the start of this year.
Retail banking is already a growth area, but Kazakhstan is unusual amongst its CIS peers as SMEs, mortgage and leasing are all growing faster than personal loans.
The mortgage market is developing particularly fast and is about two years ahead of all the other CIS states, thanks to Kazakhstan's bank sector being better developed; its banks have access to cheapish long-term financing due to bonds bought by the pension funds; and the sector is underpinned by a good law on mortgages passed by the government in 2002.
Halyk saw its mortgage portfolio grow four-fold in 2004 and the total volume of outstanding credits topped $1.3bn over the first half of this year, or about 2% of GDP, overtaking Russia in absolute terms, despite the country being a twelfth of the size.
"Halyk has a third of the mortgage market and 38% if you count just banks and most of this is not that dangerous," he said. "More risky is lending to real estate developers. Property prices in Almaty and Astana are already too high, so we are very conservative with this sort of loan."
Halyk would like to cross the border into Russia and Marchenko was hoping to find a strategic partner with whom to share the risk. Talks with "three major European banks" failed, as they were unwilling to pay the premium that Kazakhstan's leading banks are demanding.
"Kazakhstan is growing fast, but this means that to buy into a big Kazakhstan bank foreigners will have to pay a premium. The trouble is that Kazakhstan remains a small market and buying a Kazakhstan bank is not going to affect your stock prices in London or New York. With the premium, foreigners are looking at spending hundreds of millions, but unless they can see a takeover down the road it is hard to justify spending this money for a few tens of millions in dividend payments every year," said Marchenko.
A kind of insurance
Almex, the holding company of the bank, has indicated it will use part of the proceeds received from the sale of the GDRs to fully exercise its pre-emptive rights to acquire its share entitlement in an additional stock issue at the IPO price, which the bank will conduct in Kazakhstan immediately following the global offering. No details on the volume of the rights issue have been provided.
Alfa Bank said in a note: "Ironically, the scheme outlined in Halyk's announcement is a replica of that which had been suggested earlier this year in October by largest Kazakh bank Kazkommertsbank (KKB), which sold its GDRs in London at a price implying a [2007 estimated price-to-book multiple] of 3.1 times post-placement."
Alfa Bank's analysts speculate the shareholders are not only interested in raising capital, but are also aware it is more difficult to launch a politically motivated attack on the bank if it has foreign shareholders participating in its capital. The structure of the bank makes valuing it difficult, as a large chunk of the money raised in the IPO will be ploughed back into the bank by shareholders in a rights issue.
Alfa estimated the bank's equity after the placement will be $1.2bn, which gives the pricing an implied price-to-book-value of 2.9-3.1 times, which is in line with the KKB IPO.
Investors are still shy of Kazakhstan, but thanks to the country's rich oil deposits (and despite the antics of Sacha Baron Cohen's "Borat" character) the country has been going from strength to strength.
"Kazakhstan is still only the promise of oil. Metal exports have been earning more than oil, but no one has been asking about the security of the rail lines through Russia to the Western markets," said Marchenko. "The really big money won't arrive until 2020 and then last to 2032. The challenge ahead is being able to cope with all this money when it arrives."
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