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The Kyrgyz government is considering what to do with its 49% stake in Alfa Telecom after canceling an auction in the face of low interest from investors. The failed sale is just the latest in a series of difficult privatizations as the uncertain global climate sees international investors - wary of property rights and political turmoil in Kyrgyzstan already - pulling back from frontier markets.

A 49% stake in Alfa Telecom, which operates Megacom - the country's largest mobile network - was put up for auction on November 25 with a starting price of KGS4.9bn ($105m). The auction was due to take place on November 29, but with only one bidder - Sweden's TeliaSonera - having applied to take part, it was cancelled by the Fund for Nationalised Properties at the last minute.

"Since TeliaSonera was the only bidder, in view of the receipt of a single application ... the auction is declared invalid, because we require at least two applications," said a statement on the fund's website. An official at the fund told bne that the Ministry of State Property is now considering how to proceed, this being just the latest in a series of failed attempts to sell off state assets. "Some of the auctions are being repeated, but a decision has not yet been made on Alfa," he said.

Alfa is Kyrgyzstan's largest telecoms company, with a network covering 90% of the country, and serving around 2.5m subscribers in a country with a population of just over 5.3m. The company however faces legal uncertainty over two changes of ownership in the last three years.

The struggle to liquidize

The Kyrgyz government has been hoping to raise money to reduce its budget deficit and fund social spending programmes through the re-privatisation of assets nationalised after the April 2010 revolution. In addition to Alfa, these include AsiaUniversalBank (now Zalkar Bank) and the Chaken hydropower plant, which the interim government says were all connected to the family of ousted President Kurmanbek Bakiyev. Also being sold off is the personal property of the Bakiyev family, including the former president's yacht and his family home in Jalal-Abad.

Deputy Finance Minister Mirlan Baigonchokov told journalists in Bishkek on November 24 that the country's foreign debts currently amount to $2.755bn. Kyrgyzstan's foreign debt burden has soared since the revolution, and is expected to amount to 55% of GDP by the end of this year.

However, it has been difficult to find buyers. TeliaSonera has already invested in three Central Asian countries - Kazakhstan, Tajikistan and Uzbekistan - through its shareholdings in Kcell, Tcell and Ucell, and is keen to expand its presence in the region. However, the lack of rival bidders for the Alfa stake is not surprising. Few within Kyrgyzstan have the money to take over the larger assets up for privatisation, and foreign investors have turned away from frontier markets like Kyrgyzstan with the onset of the latest wave of financial crisis.

At the same time, Kyrgyzstan's image as an investment destination has been seriously tarnished by the two recent revolutions - the first putting Bakiyev into power in 2005 - and concern over property rights, despite the efforts of the government to reassure investors.

The continuing disputes over Alfa Telecom's ownership are very likely to have deterred potential bidders at the latest auction. In the first contested deal, the Megacom network was taken over by Alfa Telecom, a company allegedly affiliated with the former president's son Maxim Bakiyev, in October 2009 from a Russian company called Eventis Telecom.

At the same time, the legality of the nationalization of a 49% stake in Alfa in the wake of the April 2010 revolution is also questionable. The government's attempt to take full control of the company was thwarted by the Supreme Court, which awarded Eventis a 51% stake.

It's not an uncommon story in Kyrgyzstan's latest privatization drive. Whilst buyers have been found for some of the smaller companies - Dellasco bought both agrobusiness Asia Agroresource and sugar producer Ditis against competition from five other bidders - all of the bigger deals have proved problematic.

On October 24, the auction of Chaken HPP was cancelled, without a single application submitted. Another disappointment was the sale of Petrol Group. Intense bidding pushed the sale price well above the starting price of KGS124m, with the company eventually going to BNK Company for KGS1.5bn. However, the next day BNK backed out. The auction has now been rescheduled for December 7.