Naubet Bisenov in Almaty -

Kazakhstan's national power grid operator KEGOC on December 5 ended its sales promotion for the latest share issue under the government’s "People's IPO" programme, which is designed by the government to offer shares in big state-owned companies to the Kazakh population to help develop the local stock market and nurture a shareholder culture. The sluggish month-long subscription period was supposed to end on December 3, but was extended by two days to encourage more citizens to buy shares before they debuted on the Kazakhstan Stock Exchange.

The price of shares was set at a "very conservative" KZT505 ($2.8) per share, the company announced ahead of the subscription campaign. "This is very conservative, I would say, and the lowest conservative assessment of fair value. This was done because shares will be offered to citizens, individuals within the 'People's IPO' programme," Yelena Bakhmutova, deputy chairwoman of the sovereign wealth fund Samruk-Kazyna, said at the height of the campaign on November 24.

Despite the "conservative" price, Kazakh retail investors showed little interest in becoming shareholders of KEGOC. Indeed, the national postal operator Kazpost, which was appointed to conduct the subscription campaign, received bids for around 743,000 shares worth just KZT375mn ($2.07mn) between November 5 and 13. According to Kazpost, as of December 4 only about 11,000 people had bought 4.698mn shares worth KZT2.372bn ($13.1mn). Yet the company's "People's IPO" programme envisaged the sale of 26mn shares, equal to a stake of 10% minus a share, to the general population.

This KEGOC subscription campaign compares unfavourably with that for the "People's IPO" of the national oil pipeline operator KazTransOil in 2012. In a month-long campaign, 34,687 bids were received worth KZT59.409bn, meaning demand was double the supply.

Despite the announcement that KEGOC would divert at least 40% of its annual profit to paying dividends, the authorities seemed to have realised that the KEGOC shares would not generate as much interest as those for KazTransOil. Two days after the start of the subscription campaign, on November 7, National Bank Governor Kairat Kelimbetov admitted that the KEGOC shares not purchased by the population would have to be bought up by the state-run Single Accumulative Pension Fund.

Although the company's reports show that the book value per share was almost three times the IPO share price, KEGOC's financials may have discouraged the population from buying into the company. Ahead of the IPO, KEGOC’s chairman, Bakytzhan Kazhiyev, admitted the grid operator had borrowed over $1bn from international financial institutions to carry out investment projects. Despite reducing its outstanding debt to about $600mn by the time of the IPO and having "significant funds" in foreign currency to service the debt over the next 12 to 24 months, the company's financial performance was hit badly by a 19% devaluation of the tenge in February, as its expenditures grew faster than its revenues. As a result, KEGOC’s profit was down 48% year on year to KZT1.8bn in the first nine months of 2014.

The company could yet improve its financial situation after the government approved a tariff increase for the company's services, including a 50% jump for transmission services, on November 1. Generally, the structure of tariffs is a weak spot of the power transmission monopoly and the government realises this. Samruk-Kazyna's Bakhmutova noted that in order for state-owned companies, whose tariffs are strictly regulated by the government, to offer their shares to the population under the "People's IPO" programme, legislation on tariff regulation should be changed. "Without predictable tariff policy it is impossible to forecast the results of a company's performance and it is impossible to carry out an IPO without this," she concluded.