Kyrgyzstan's nationalised companies go on the block

By bne IntelliNews November 8, 2011

Clare Nuttall in Almaty -

Kyrgyzstan's president-elect, former prime minister Almazbek Atambaev, is pushing ahead with the privatisation of companies and other assets nationalised after the April 2010 revolution. Revenues so far have been modest, but two large and highly controversial assets - a stake in mobile telecommunications company Megacom and Zalkar Bank, the successor to AsiaUniversalBank (AUB) - are due to be auctioned off later in November.

Kyrgyzstan's State Property Committee is aiming to raise around 5.5bn soms ($120m) from the sale of these nationalised assets, but as of October 17 just under 40m soms had been raised, reports. The largest asset put up for sale, the Chakan Hydropower Plant, did not find a buyer.

Selling off assets seized from the family of ousted president Kurmanbek Bakiyev and alleged associates is one of several steps the Kyrgyzstan government is taking to try to reduce country's budget deficit. Tax revenues slumped in 2010 when the revolution sent the economy into temporary freefall. Despite donor assistance and a strong recovery this year (the International Monetary Fund forecasts 7% growth in 2011), there is still not enough in government coffers to fund both the reconstruction of the south after the June 2010 ethnic violence, as well as salary increases for state workers.

Assets sold so far have been a mixed bag and include agro-business Asia Agroresource and sugar producer Ditis, as well as hotels and holiday homes owned by former government officials or their relatives. No buyers came forward for the Bakiyev family residence in Jalal-Abad, although the committee managed to sell off the Bavaria-38 Cruiser yacht, which was originally owned by Aidar Akayev, son of Kyrgyzstan's first president, before being acquired by the Bakiyevs.

Upcoming sell-offs promise to be more high profile. The State Property Committee has announced that a 49% stake in Megacom operator Alfa Telecom will be auctioned on November 29. According to a source close to the committee, Zalkar Bank is due to come up for sale on November 15.

Calling investors

When President Kurmanbek Bakiyev was overthrown, one of the first acts of Roza Otunbayeva's interim government was to place the country's largest bank AUB and several smaller banks under the control of the central bank while alleged links to the Bakiyev family were investigated. AUB's former management, led by ex-chairman Mikheil Nadel, have always denied links to the Bakiyevs, but attempts by AUB shareholders to regain control of the bank have been unsuccessful.

AUB has since been split into a "bad bank" and a "good bank", which was renamed Zalkar Bank and prepared for re-privatisation. Though the turbulence of the last 18 months have taken a toll on the bank's business, Zalkar Bank still has Kyrgyzstan's second largest branch network, and is the seventh largest bank in terms of its asset base.

The planned sale of 49% of Megacom operator Alfa Telecom is equally controversial.

BiMoCom, the original operator of the Megacom network, was majority owned by Russia's Eventis Telecom until Alfa Telecom, a company allegedly affiliated with Maxim Bakiyev, took over the assets in October 2009. After the April 2010 revolution, the government tried to nationalise Alfa Telecom, but Eventis moved to reassert control over its original 51% of the business. This, however, was not to the liking of the new government in Bishkek, which launched a criminal investigation into Megacom's directors in the hope of taking full control of the operator. That case brought down Kyrgyzstan Prosecutor General Kubatbek Baibolov, who was sacked after his wife's links to Megacom emerged; he later ran against Atambaev in the October presidential elections. However, the government's plans to take over the whole of the business were thwarted by a Supreme Court ruling on June 21. It was then decided to sell off the 49% stake of Alfa Telecom that is currently in government hands.

But with Megacom's murky history and still contested shareholding structure, it's doubtful whether any investors will be interested, even though telecoms are one of Kyrgyzstan's few consistently profitable sectors. "I believe some international mobile companies are interested, but there are still questions about ownership," says Umet Daletbayev, managing director of Aiten Consulting.

Kyrgyzstan's recent history of nationalisations and lack of protection for property rights following the latest revolution have alarmed potential investors. "Foreign investors thinking of putting money into Kyrgyzstan saw the instability and postponed their investments because they need to be sure their money will be safe," says Aktilek Tungatarov, executive director of the International Business Council (IBC) in Bishkek.

With the Eurozone deep in crisis, few investors in any case are looking to high-risk frontier markets like Kyrgyzstan.

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