EURASIAN BLOG: Kazakh attempts to attract investors flop

By bne IntelliNews July 14, 2015

Naubet Bisenov in Almaty -


The image-obsessed government of Kazakhstan is trying hard to boost name recognition for what is still an obscure nation, best known for its natural resources, corruption and perhaps the antics of the British comedian Sacha Baron Cohen’s character Borat. For this purpose it has bid to host global events such as the Winter Olympic Games in Almaty in 2022 and has embarked on other questionable vanity projects such as an EXPO international fair in Astana in 2017 and the Winter University Games in Almaty in 2017.

But all the efforts made since the experiment started in July 2014 are yet to show tangible results. This is embarrassing as at the same time the government has been tightening its belt because of the low oil prices and a slowdown in Kazakhstan’s main trading partners Russia and China.

Even the country’s authoritarian President Nursultan Nazarbayev blasted the government on July 13 that it had done little to promote the EXPO 2017 exhibition to attract the 5mn tourists to the Kazakh capital that could justify the $3bn price tag of the extravaganza for the taxpayer. On the contrary, the event has damaged rather than promoted the country’s image after managers at the company building the facilities were arrested in a corruption scandal

In order to promote the “young” country, which obtained independence from the Soviet Union in December 1991, the government has also offered various perks to foreigners to encourage them to invest in sectors outside oil and gas and metals. In July Astana also expanded a list of countries whose nationals can now travel visa-free to Kazakhstan to include Sweden, Norway, Switzerland, Spain and Singapore among others, and is pondering abolishing visas for nationals of all OECD member states in 2017 to attract tourists ahead of the EXPO 2017.

The government has also been trying to encourage retail investors to invest in the economy via the much-hyped “people’s IPO” programme, which envisages selling parts of state-owned stakes in national companies to Kazakh citizens.

The programme, announced with pomp in 2011, was supposed to float shares of national companies run by the Samruk-Kazyna sovereign wealth fund to liven up the Kazakhstan Stock Exchange. However, the government has so far only managed to offer shares of the KazTransOil oil-shipping company in 2012 and Kegoc electricity grid operating company in 2014. The programme initially envisaged the floating of 10% stakes in Samruk-Energy power generation, Air Astana, KazTransGas gas-transporting company and Kazmortransflot shipping company in 2013, but Samruk-Kazyna now says shares in these companies and in Kazakhstan Temir Zholy railway company will only be offered to the population in 2016.

“The key aim of the IPO programme is to reduce the state’s role in the economy. The government is seeking to sell off small stakes in large state-controlled companies in a manner which allows ordinary Kazakhs to acquire shares,” Alex Nice, a Kazakhstan analyst at the London-based Economist Intelligence Unit (EIU), tells bne IntelliNews. “Evidently, the authorities wish to ensure that the part-privatisations are seen as legitimate in the eyes of the public. Another aim of the programme is presumably to deepen Kazakhstan's financial markets and improve the companies’ access to financing.”

Stepping on the same communist rake

The authorities hyped the sale of the electricity transmission monopoly’s shares to the population at “very conservative” KZT505 ($2.8) per share, promising that at least 40% of its profits would be channelled into paying dividends, but the markets did not back the official enthusiasm as only 11,000 people bought 4.698mn shares worth KZT2.372bn ($13.1mn) out of 26mn shares offered.

Since the float the shares touched all-time lows at KZT320 in March but picked up to trade at about KZT475 on July 13 on the announcement of the payment of 100% of profits in 2014 as dividends at KZT33 per share. In contrast, the shares of KazTransOil initially offered at KZT725 per share reached the highs of KZT1,250 and are now trading around KZT785 per share.

The sale of shares of the Mangistau Distribution Electricity Company, operating in the oil-rich region on the Caspian Sea, was cancelled at the end of 2014 because of lack of interest from investors, who expressed willingness to buy only 0.3% of shares on offer. The company doesn’t feature in the government’s “people’s IPO” programme, although it is owned by state-run Samruk-Energy and the Unified Accumulative Pension Fund, formed from a state-owned fund and private funds.

The problems of the Kazakh government’s “people’s IPO” programme is blamed on the sluggishness of the stock market in the country after the government nationalised private pension funds, reducing the number of players on the market. Moreover, the move defeated the government’s objective to reduce the state’s involvement in the economy.

“The government's policy in this area has been inconsistent, as at the same time as planning people's IPOs, the government has nationalised the pension system,” Alex Nice of the EIU tells bne IntelliNews. “This contradicts efforts to reduce state control of the economy, since the government-run pension fund will likely acquire a significant share of the shares issued in future IPOs.”

The Kazakh government’s involvement in the economy is also blamed for the failure of its IPO programme. Local analysts even draw parallels between the collapse of the Chinese stock market, which is experiencing a private investor run, and the Kazakh stock market.

Beijing’s support of China’s stock market bubble has already been dubbed “Xi Jinping put”, Anuar Ushbayev, an analyst and managing partner at the Almaty-based Tengri Partners investment firm, said in his blog. “Taking into account our inclination to step on the same communist rake in certain economic policies,” Ushbayev said in reference to President Nazarbayev’s communist credentials, “I think I shall not invest a single penny in any people’s IPOs until each national company will have independent directors-professionals with clear vetoing rights on their boards of directors.”

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