COMMENT: Strengthening the foundation of the Uzbek capital markets infrastructure

COMMENT: Strengthening the foundation of the Uzbek capital markets infrastructure
The Tashkent Stock Exchange was set up in 1994 but has done little since then. A new presidential decree issued last week has launched a major capital markets reform that could change all that. / wiki
By Fiezullah Saidov in Tashkent April 18, 2021

Previously unthinkable reforms have embraced many aspects of Uzbek economy and society. Presidential reforms in areas such as taxation, foreign exchange, regional co-operation, green energy, direct communication between the government and the general populace have been in the international media spotlight and have attracted the attention of international investment community.  

Uzbekistan has become an active player in international debt markets, where the government and state-owned banks have issued not only conventional Eurobonds in US dollars, but also Eurobonds issued in Uzbek soum, and banks are also getting long-term Uzbek soum-denominated loans from the international financial institutions (IFIs) and the private sector.  

Banks have played the key role in funding the impressive growth Uzbekistan has been experiencing over the last four years. Although banks already constitute 80% of the stock market value now, due to low free float and lack of depth in the market, capital raising abilities are reduced and many have reached their limits in lending to the country. To reduce risks and increase the funding base, capital markets need to play a more significant role.

A vibrant capital market is the missing element from the overall market infrastructure. The size of the Uzbek capital market is not commensurate with its peers in the region.

The new Presidential Edict 6207 of 13.04.2021 should mend this issue. This decree is the result of a lot hard work put in by Uzbekistan’s allies in the development banks such as European Bank for Reconstruction and Development (EBRD) and Asian Development Bank (ADB) in the last few years, as well as various other government grants.

The decree comes with a roadmap and concrete goals, concrete people who are responsible and concrete targets to be reached within two short years, by the year 2023.

The decree calls for:

Increasing the number of issuers, new financial products (such as Sharia-complaint Sukuk bonds, exchange-traded funds (ETFs), including Gold ETFs, crowdfunding) and improving supply by improving corporate governance (such as adoption of OECD corporate governance guidelines) and developing issuance of corporate bonds.

Development of securities market infrastructure, by improving the market access, provision of complete information and simplifying the settlement process, establishing associations and strengthening local rating agency capabilities. Also, the pricing of issues should take place based on underwriters’ suggestions. Valuation has always been a contentious issue in Uzbekistan, as the state looked for simple single-value setting, whereas the markets could set ranges. The edict also calls for reduction of the state's share in Tashkent Stock Exchange to 25%+1 share, where Korean Exchange is already a shareholder.

Improving the IT systems of the capital market, by developing mobile applications to directly access the capital markets, allowing opening accounts for non-resident investors at a distance and automating the KYC and AML procedures, stabilising the functioning of the Single Software and Technical Complex (SSTC) by creating reserve servers and making SSTC more transparent for the regulator to make it easier to monitor.

In terms of the legal framework, the decree calls for the development of a new Capital Market Law based on the principles of the International Organisation of Securities Commissions, an association of organisations that regulate the world's securities and futures markets, and increasing the regulator's independence by improving the fund management legislation to seamlessly integrate the funding market and sectors of economy and by improving the holding company legislation.

Increasing the investor base and improving the general investing public literacy by allowing non-residents to open accounts without having a physical presence, allowing them to participate in local IPOs and SPOs, allowing insurance companies to participate in the local capital markets and establishment of investment funds with foreign counterparties, taking measures to educate the population about the capital markets, and holding international investment forums and conferences to introduce the market developments to the international investing community. Involving the population of Uzbekistan in the securities market allows them to have a skin in the game and makes the reforms irreversible, and lets them benefit from the reforms personally.

Development of local treasury debt issuance market, allowing residents and non-residents to invest in treasury bond market (except for Central Bank debt) and establishing the role of market makers, further developing the treasury debt issuance, including issuance of inflation linked debt, aligning the local issuances with international best practices, and introducing project bonds to fund infrastructure projects. It also calls for publications of issuances in advance and holding regular issuance dates on certain days of the week and moving to internationally accepted T+1 and T+2 settlement.

Improving the market participation qualifications by training and re-training through developing programmes jointly with leading learning institutions and creating special training capabilities at the Banking Academy and training the regulator staff by overseas on-the-job training and conducting courses for them at Business School at Ministry of Economy.

The edict comes with ambitious targets that are set until the year 2023:




Market Cap (free float in UZS trillion)



Free float market cap in % to GDP



Total Value of Corporate Bonds (UZS, trillion)



Total Value of Corporate Bonds (% to GDP)



Financial and Investment Literacy for population and entrepreneurs



Investment Settlement Accounts



Regional Development Projects financed through capital markets




Capital market development is always a chicken-and-egg issue, no investors because there is nothing to buy and no issuances there are no investors. Hence the president’s decree lists national jewels to be listed on the stock market, to short-circuit this loop.

The companies and banks that will be listed on the local stock exchange are and have been indicated in the past as “companies and banks not for immediate sale”. They include many of the most attractive companies in the entire economy:


National Bank for Foreign Economic Activities of Uzbekistan


Navoi Mining and Metallurgical Plant


Almalyk Mininng and Metallurgical Plant




Uzbekistan Airways






Xalq banki












Qishloq Qurilish Bank




The names on this list coincidently overlap with companies listed in the Presidential Decree 6096 that listed the leading companies to be transformed.  

The Project Management Office at the Ministry of Finance, headed by First Deputy Minister of Finance Omonulla Nasretdinhojaev, guided by Ravshan Goulyamov, Chief Economic Aide to the President, are performing a Herculean task of transforming these companies and banks, and these two streams (company transformation and capital market development) should converge in the year 2023.

The markets will be ready to accept these transformed companies with strong corporate governance, improved and clear commercial and operating models as well as having introduced IFRS reporting at all of them. Decree 6096 had been previously discussed in detail. They should be fit as growth companies at time of listing.

As bne IntelliNews reported, the functions of the Capital Markets Development Agency (CMDA), which spearheaded these changes have been moved to Odilbek Isakov, the Deputy Minister of Finance, last week, who is an ex-HSBC debt capital markets banker and who has strong track record of introducing Uzbek state and large state-owned banks to the international markets, by heading the international debt issuances.  

Ex-Goldman and ex-EBRD senior banker Atabek Nazirov, who had headed CMDA, now has moved to head the private equity fund of Uzbekistan and became an aide to the Minister for Investments and Foreign Trade. Ex-Goldman Banker Sarvarbek Akhmedov may head the department in charge of the securities market department of Ministry of Finance.

Underdeveloped market infrastructure is hampering the reduction of cost of funds to borrowers in local currency. Banks do not have a functioning overnight placement of paper, nor a mechanism for repo, hence overnight funds are not being utilised to fund longer-dated paper.  

This is one of the ways to reduce dollarisation of debt, reduce the cost for borrowers and help banks and insurance companies to earn more on the float, Hence whilst development of equity markets instrumental to start playing a significant role in financing growth, local debt market infrastructure is important to stabilise the debt situation. As an example, Japan can withstand large debt/GDP levels, due to majority of investors being local investors.

Perhaps, along with these measures, the government should be open for dialogue with international investors on pre-IPO investment and listing of smaller companies in international stock exchanges. It will give the needed hands-on experience and could further improve the capital markets operations in Uzbekistan. There are several strong candidates; however, they are not big enough to be considered a strategic asset, but big enough and are ready to be listed in international markets imminently.

Fiezullah Saidov is the CEO of Uzbekistan Equity Fund and a banking sector consultant for the IFC.