Kyrgyz stock exchanges merge in hope of better times ahead

By bne IntelliNews June 13, 2011

Clare Nuttall in Bishkek -

Kyrgyzstan's three stock exchanges had to share the meagre $20m of total turnover last year. However, the Central Asia Stock Exchange (CASE) has shut down, and the Kyrgyz Stock Exchange (KSE) is now merging with its remaining rival, Stock Exchange of Kyrgyzstan (BTS).

Despite the uncertainty in the run-up to the autumn 2011 presidential elections, KSE president Aibek Tolubaev hopes that planned privatisations of state-owned companies will stimulate the newly merged exchange, and is aiming to carry out the first international cross-listing of a Kyrgyz company by the end of the year.

Trading volume on the KSE plummeted to just KGZ439m (around $10m) in 2010, due to a combination of the slump in frontier markets investment during the international economic crisis and the April revolution and subsequent ethnic violence in Kyrgyzstan. In a country where much of the population literally keeps its savings under the mattress, trading is in any case low by international standards. However, the 2010 figure was less than 10% of that seen in 2008, when trading volume peaked at KGZ5.2bn ($130m), before falling to KGZ4.2bn ($90m) in 2009.

The drop in business is not necessarily a shock, since the last few years have thrown up one challenge after another. "The pressure of the financial crisis was felt in 2009. International frontier market investors used to be active on the exchange, but now the biggest investors are local," the KSE president Tolubaev tells bne. "Foreign investors want the political and economic system to be stable, so a lot were also lost after the events in 2010. We don't expect anyone from foreign countries to come to Kyrgyzstan before the presidential elections this autumn."


Founded in 1994, the KSE is owned by several Kyrgyz banks and insurance companies, alongside the Kazakhstan Stock Exchange (KASE) and the Istanbul Stock Exchange. It accounted for almost 80% of total turnover in Kyrgyzstan in 2010. The CASE and BTS, both created later and with a single shareholder, accounted for just 15% and 6% respectively. However, after the April 2010 revolution, the CASE, which was linked to the family of former President Kurmanbek Bakiyev, "was crushed", Tolubaev explains. Following that, the KSE and the BTS started negotiations, and an agreement to merge was signed on March 5. The two exchanges are now in the process of consolidating.

As Tolubaev points out, Kyrgyzstan is not really big enough for more than one bourse. "We would like to see some changes to legislation so there can only be one stock exchange," he says, adding that he hopes to see activity pick up this year and that international investors will return following the elections. The International Monetary Fund (IMF) forecasts 5% GDP growth this year, but the country's reputation as an investment destination was severely tarnished by last year's events.

Downhill from here?

Hoping that the country has now suffered more than its fair share of negative events, the KSE is currently in talks with some of Kyrgyzstan's largest listed companies with the aim of seeing the first international cross-listing of a Kyrgyz company carried out this year. According to Tolubaev, that business will likely be launched on Kazakhstan's KASE, followed by Russia's Micex or the Istanbul Stock Exchange. "This would be good for the profile of the KSE and for the development of our companies," says Tolubaev.

As with its "big brother" in Kazakhstan, the KSE hopes that planned privatisations will accelerate investment. At present, liquidity is low, with large and potentially attractive companies such as KyrgyzTelecom and Manas Airport having free floats of no more than 1% or so. "We have proposed to the government that they sell state stakes in companies such as KyrgyzTelecom, Manas Airport and some of the state energy companies via the KSE, which would increase their free float to 5-15%," says Tolubaev. "This will have the triple benefits of bringing money into the budget, increasing capitalisation of the stock exchange, and helping foreign and local investors to invest funds."

KSE officials have also proposed that securities in major infrastructure projects such as the Kambarata hydropower plant and the Datka-Kemin south-north high power electric line could be sold via the exchange. Changing the law so that treasury bills, which are currently only traded by commercial banks through Kyrgyzstan's central bank, could be traded on the KSE would open that market up to brokerages, insurance companies and pension funds.

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