Kazakhstan Continues Privatization Strategy

Central Asia’s financial powerhouse is privatizing its largest and most valuable state-owned companies.

Over the last two decades, Kazakhstan has privatized thousands of state-owned assets and offered foreign investors shares in a range of industries, from energy and manufacturing to transport and communications. Now, buoyed by a growing and diversifying economy, the country is in the midst of a new wave of privatization that will include many of its largest strategic companies.

It began on Nov. 14, 2018, when Kazatomprom, the world’s largest uranium producer, became the first large Kazakh company to list an IPO since 2008. It offered 15% equity on the London Stock Exchange (LSE) and the Astana International Exchange (AIX), raising $451 million.

The AIX, created only last year, has enabled the trading of domestic assets within the nation’s borders as well as on international exchanges, and many other large and medium-size Kazakh companies partly or wholly owned by Samruk-Kazyna—Kazakhstan’s sovereign wealth fund, with $67 billion in assets—have IPOs planned for 2019–2020.

“In 2019, we plan to list two Samruk-Kazyna companies through IPOs,” said Alikhan Smailov, Kazakhstan’s Deputy Prime Minister and Minister of Finance, at a press conference on Feb. 11. “These are Kazakhtelecom and Air Astana. In 2020, the plan will include Kazakhstan Temir Zholy, KazMunayGas, KazPost and Samruk Energy.” Smailov added that the nation’s most recent privatization program, begun in 2016, is 84% complete.

Kazakhtelecom provides most of Kazakhstan’s communications services, including broadband internet, mobile and television. Air Astana, Central Asia’s leading airline, flies 64 routes, including long-haul flights to London, Frankfurt, Paris, Dubai, Delhi, Seoul, Bangkok and Hong Kong. The carrier has nearly 5,000 employees and 34 aircraft in service, with another 23 on order.

While precise timing of the IPOs has yet to be set, in March, Tim Bennett, CEO of AIX, stated that the Ministry of Finance expects Air Astana (which Samruk-Kazyna controls with 51% of equity) to launch its IPO in October or November 2019.

On May 17, Almasadam Satkaliyev, Samruk-Kazyna’s Managing Director, revealed that J.P. Morgan and UBS will coordinate the Air Astana IPO, and that the sovereign fund plans to sell about 10% of Kazakhtelecom, which has a market capitalization of about $740 million, in July or November. He added that an additional 10% stake in Kazatomprom might be offered in the future.

Most of the IPOs will be listed on both the London and Astana exchanges, and potentially other exchanges such as the Hong Kong Stock Exchange. KazMunayGas, a $6 billion oil and gas behemoth, is expected to raise $3 billion to $5 billion when its IPO, representing 25% of equity, is launched next year.

Largest-Ever Privatization Offerings

In total, the Ministry of Finance reportedly plans to sell 47 national assets worth $117.2 million this year, in addition to 246 communal property assets worth $170.5 million, 102 assets owned by national holdings worth $948.8 million, 78 corporate social entrepreneurship assets worth $15.9 million and 123 facilities. Another 280 facilities are being readied for liquidation or privatization.

By offering shares in its most attractive national assets, Kazakhstan plans to generate more capital to invest in technological innovation and sharpen its strategic industries and international trade in its diversification from oil, gas and mining. Ultimately, the government aims to reduce state ownership of such strategic enterprises from 40% to around 15%.

Nursultan Nazarbayev, who initiated the country’s privatization programs, resigned on March 19 after three decades as President of Kazkhstan, and was succeeded by the Speaker of the Senate, Kassym-Jomart Tokayev, who was inaugurated on June 12. Nazarbayev continues to serve as head of the ruling party and of Kazakhstan’s Security Council. The leadership transition has not affected the nation’s ambitious plans to attract more global investment and stimulate its economy.

Kazakhstan’s road and rail connectivity has greatly expanded in the last few years, fitting well with regional integration processes such as the Belt and Road Initiative (BRI). Rail freight from China now reaches Europe in less than two weeks, only a third of the time it takes to ship by sea.

A Benchmark for Central Asia

Kazakhstan’s efforts to increase FDI and raise its international profile continue to bring investors and other stakeholders to the country. On May 16–17, nearly 5,500 participants from 74 nations attended the 12th annual Astana Economic Forum in the Kazakh capital, which focused on “Inspiring Growth: People, Cities, Economies.”

“I’m pleased to say that through the hard work of the government and private companies, female labor force participation in Kazakhstan is now at 65%, which is the highest in the region and a benchmark for every country in Central Asia,” said International Monetary Fund (IMF) Managing Director Christine Lagarde at the forum’s opening panel.

“If Central Asia can harness the power of fintech as emerging economies in other regions have done, the potential gains for women, for young people and for the poor are significant,” added Lagarde. 

Other speakers attending the event included Nobel Prize-winning economist Paul Romer; Kenneth Rogoff, Former Chief Economist of the IMF; and Armida Alisjahbana, Deputy U.N. Secretary General.

Astana—officially renamed Nur-Sultan on March 23—attracted a record $7.9 billion in FDI in 2018, according to the Astana Times, and the city aims to match that figure in 2019.

“Investment in construction and installation constitutes an average of 70 to 80%” of total FDI in the capital, according to Nur-Sultan Mayor Bakhyt Sultanov, who stated at a government meeting on April 22 that 45 of 200 investment projects there involve foreign investors and multinational companies. The Nurly Zhol project, a $40 billion infrastructure plan, has driven much of this investment.

Kazakh Invest, a one-stop shop for investors established by the government, provides many services to facilitate foreign investment in Kazakhstan. Last year, 27 investment projects with participation of foreign capital worth $3.1 billion were put into operation, and Kazakh Invest is monitoring some 157 projects totaling $39.6 billion.

Since 2015, Kazakhstan’s currency, the tenge (KZT), which is primarily pegged to the Russian ruble, has lost much of its value against the U.S. dollar, which may present a favorable climate for international investors. Prior to August 2015, when the government announced that the tenge would become a floating currency determined by the market, the exchange rate was 180–190 KZT to the dollar; today, the rate hovers around 380 KZT to the dollar.

 All Assets on the Table

“We’re not ruling anything out,” said Almasadam Satkaliyev, Managing Director of Samruk-Kazyna, in an April 30 interview with Kommersant, the national Russian business daily newspaper.

“We have planned the Kazakhtelecom and Air Astana sales this year as part of the privatization program for 2019 without setting specific months or quarters. Everything depends on the companies meeting targets—for example, audited accounts for a certain period, and others. We intend to wait for a window so that we can get a fair valuation.

“Preparations for Kazakhtelecom are going very well. Corporate targets have been hit, and we are now waiting for reports from the investment banks—J.P. Morgan and VTB—including drawing up an investment memorandum.

“Investors see great prospects, because as the main fixed-line operator, Kazakhtelecom has become the biggest player in Kazakhstan’s mobile-phone system in a short time by acquiring Kcell assets, and it also intends to buy Tele2 assets.”

Regarding the delay of the Samruk Energy IPO, which has attracted considerable investor interest, Satkaliyev explained that “the company has been included in the privatization program as either an IPO or a sale to a strategic investor. We have hired a consultant for the pre-sale assessment and are now waiting for proposals on how it should be sold and what size the stake should be.”

The Kazatomprom IPO “was a very successful placement,” he added. “We sold at fair value. [I]t was at the lower end of guidance, but it’s worth mentioning, as a plus for both the fund as the main shareholder and other investors, that the company’s market cap has risen more than 25% since the sale.

“As far as financial results are concerned, overall revenues from asset sales in the [current] privatization program have reached 346 billion tenge [$900 million].”

Privatization of the national blue chips including a summary of the Kazatomprom Experience will be discussed at the Astana Finance Days event on July 1-4, 2019.

Written by Gabe Kirchheimer, for Bloomberg Media Studios