Kazakhstan launches government bond settling via Clearstream

Kazakhstan launches government bond settling via Clearstream
Clearstream has arrived in Astana, Astana has arrived in the international central securities depository.
By Kanat Shaku in Almaty July 31, 2018

Kazakhstan’s central bank announced on July 30 that Kazakh government bonds and central bank notes can now be cleared through the international central securities depository Clearstream.

Clearstream, owned by German stock market operator Deutsche Boerse, will provide easier access to the securities, thus making them more attractive to foreign investors. At the same time, the move enables the Central Asian country to borrow at more competitive rates. The Clearstream step is part of an overall ongoing drive in Kazakhstan to shift its focus more in favour of foreign investment. Aside from hooking up the country to the clearing house, Kazakhstan recently launched the Astana International Financial Centre (AIFC)—a financial services centre that has ambitions to become a regional financial hub.

In January, Kazakhstan’s finance ministry and the Astana International Exchange (AIX) stock exchange, which fully launched in July, signed an agreement to enable the clearing of Kazakh securities via Euroclear. Settlements via Euroclear are expected to launch in 2019.

Foreign investors held KZT444bn (€1.14bn), or 10.2%, of the central bank’s outstanding short-term notes as of May 1, according to the regulator's data.

Yield-hungry investors
Kazakhstan is hoping to tap into large inflows from yield-hungry international investors. Such a scenario was enjoyed by Russia after it made its domestic system compliant with Euroclear and Clearstream in 2012. For ex-Soviet Kazakhstan’s big northern neighbour, adding the two clearing companies meant that investors in London and New York could buy and trade government debt without going to the cost and inconvenience of setting up accounts with local securities depositories. Outstanding finance ministry treasury bills (OFZs) trades appear on their terminals worldwide with a trading floor. Russian government bonds held by foreign investors accounted for a record 34% of all OFZs and were worth RUB785bn ($12.7bn) as of the peak seen in February.

Compliance departments are said to love the Clearstream and Euroclear post-trade services arrangements as counterparty risks from banks and brokerages operating in someone else’s jurisdiction can be gotten rid of at a stroke—not to mention the considerable cost savings that can be made. Clearstream said in a press release that Kazakhstan is its 57th market link. Citibank Kazakhstan JSC will act as local custodian and cash correspondent bank.

Philip Brown, Co-CEO of Clearstream Banking S.A., said: “The new link to Kazakhstan is an important milestone as it follows Clearstream’s strategic aim to provide further access for our global customers to the Caucasus and CIS region. We are happy to partner with Citibank to connect the Kazakhstan market to Clearstream’s international settlement infrastructure.”

Daniyar Akishev, Governor of the National Bank of Kazakhstan, commented: “Clearstream’s new Kazakhstan link is a major step for capital market development in our country. We are happy to continue to cooperate with Clearstream, and that the new link will connect European, international and domestic market participants at international standards.”

The new capital market has been a godsend for the Russian government amid the pressure of international sanctions—the Russian budget deficit is increasingly funded by foreign investors buying ruble-denominated assets. Kazakhstan’s close economic ties to Russia have meant the sanctions effect has tangentially impacted on the Kazakhs’ level of prosperity. Thus the access to the clearing houses is likely to help Kazakhstan draw in much needed extra financing to support economic diversification efforts.