Uzbekistan now plans to drive traded shares capitalisation to $8bn by 2030 after missing 2023 target by long shot

By Muzaffar Ismailov in Tashkent September 21, 2023

Uzbekistan plans to increase its capitalisation of freely traded shares to at least $8bn by 2030, Kursiv has reported.

As things stand, this figure stands at only $340mn. Hitting the $8bn target would mean growing the free float market capitalisation of the Uzbek stock market by more than 20-fold in seven years.

The new target is to be pursued by the National Agency for Advanced Projects (NAAP).

There was a plan framed by a 2021 decree to expand the value of shares in free circulation to $3.7bn (5% of Uzbek GDP) by the end of 2023. That’s no longer realistic. With capitalisation at $340mn (just $100mn higher than what was recorded for 2020 and equivalent to 0.4% of GDP, just as it was three years ago) the target is entirely out of reach, Kursiv's report illustrates.

The failure can mainly be attributed to the delays that have bedevilled the government’s initial public offering (IPO) campaign, according to the publication.  So far in 2023, metallurgical enterprise Uzmetkombinat is the only one of 15 issuers that were due to hold an IPO this year that has actually done so.

No new tools that would raise the popularity of the Uzbek stock market among investors have been presented. There have been plans and suggestions for exchange-traded investment funds, including those linked to gold, mortgage and Islamic securities, and crowdfunding. None of it has got off the ground.

Chairman of the National Association of Investment Institutions of Uzbekistan, Bahodir Atakhanov, was reported by Kursiv as noting that the former market regulator took measures towards implementation, but was hampered by a conflict of interests. According to Atakhanov, negative impacts have also stemmed from a weak dialogue between the state and the professional community of the country's capital market and an unfavourable combination of events affecting world markets.

Director of investment company Kapital-Depozit, Farrukh Khodjaev, told Kursiv that the main reasons for the non-fulfilment of key points of decreed capital market development goals were the frequent change of regulator, a shortage of qualified personnel at responsible bodies and a lack of proper control over implementation.

With the arrival of the new regulator, Napp, a new roadmap for the formation of the capital market up to 2025 was produced. Perhaps the main thing that it provides for is the launch of a unified depository system and the establishment of communication with international players. The lack of basic infrastructure is the main reason why the stock market of the republic is ignored by foreign investors, it is widely agreed.

In order to buy stocks or bonds on the Uzbek market, a foreigner must come to the country in person and issue an invoice. In addition, corporate securities and government bonds are stored in different depositories. The first category is accounted for in the Central Depository, and the second on the currency exchange, which has its own system. At the same time, none of the Uzbek depositories has established interactions with Clearstream or Euroclear.

If the new plans are realised, Uzbekistan will introduce a unified depository system from January 1, 2025. The central bank will conduct calculations on securities (presently, the commercial National Bank of Uzbekistan (NBU) performs this task) and will become responsible for the central depository (for this, it will be given a state package of shares). By July 2024, measures should be taken to open direct accounts in national and foreign currency with the central bank for settlements on government bonds at the request of nominal holders (Clearstream, Euroclear) and custodian banks. The central bank inspires more confidence among foreign investors than NBU.

The new regulator promises that during the shake-up it will approach the stated deadlines strictly.

"The Agency, together with other structures involved, will take measures to ensure the strict and timely execution of orders within the established deadlines," Vyacheslav Pak, First Deputy Director of Napp told Kursiv. "In some cases, the timing of the adoption of certain documents will depend on the passage of interdepartmental coordination procedures."

According to Georgy Paresishvili, chairman of the board of the Republican Stock Exchange Toshkent, a new law on the capital market is needed as in the regulatory sandbox it is seen that many obstacles for investors are removed. The regime is being introduced due to the fact that legislation is not ready yet.

Salimjon Yusupov, a lawyer at KY&Partners, which advises investors, told Kursiv that it would be too optimistic to expect a radical change in the situation even after the adoption of the new document.

"There is a lot of work ahead to bring legislation into line with the adopted document, implement and test mechanisms, and, given that at first a lot will be implemented within the regulatory sandbox, to establish trust with foreign investors," he was reported as saying.

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