When Kase, the Kazakhstan Stock Exchange based in Almaty, the country’s financial capital, said it was looking to raise much needed cash to develop the country’s capital market infrastructure, few were surprised by the method it chose for funding. With all the paperwork done in the city, and joint lead managers on the deal Centras Securities and Visor Capital, also based there, its $25m (€16.2m) initial public offering (IPO) was exactly what investors expected from this exciting equity capital market (ECM) story.
“I’m very bullish on ECM in Kazakhstan,” says Eldar Abdrazakov, chairman of Centras Securities, an investment company established in 2004 to meet growing local pension fund interest for non-fixed income instruments. “Structural changes have made the equity markets more attractive and enhanced how it functions, though the stock market remains in its infancy in the country,” he adds.
The pension fund industry has $12bn in assets under management, of which $2bn is in insurance funds and a further $2bn is invested in mutual funds.
Recent reforms have given Kazakhstan’s pension funds a regional advantage in attracting issuer interest and boosted the domestic capital market, especially building up local equity funds. “Pension changes in Kazakhstan have outpaced neighbours Ukraine and Russia, so there is local money that can go into these companies and strong domestic cash flows certainly exist,” explains Jon Edwards, head of CIS and CEE at the London Stock Exchange (LSE).
The LSE is bidding to be the alternatives investment market (AIM) of choice for CIS companies looking to raise equity finance, either through a single listing, or a dual listing for example on Kase or Moscow’s RTS or MICEX. The addition of Russian retailer Magnit in April took the number of CIS firms listed on the LSE to 100 and it is estimated that they have raised $73bn through IPOs, further money raising and debt issues.
Competition to the LSE comes in the form of NYSE/Euronext and its tentative steps into Kazakhstan’s expanding capital market. “We have a pipeline of deals but nothing for sure. I’ve made three to four trips to the country and the feedback has been positive,” says Aaron Goldstein, head of Russian Business Development International Listings, NYSE Euronext. Mr Goldstein says his exchange can offer a large pool of US bluechips investors to potential issuers and the addition of European investors on Euronext, and also a longer trading window.
One hedge fund manager told FT Mandate that where emerging companies listed didn’t matter, as long as the funds were there to invest in and investor transparency “was in reasonable shape”. “I don’t see it as a selling point whether you’re on the LSE or NYSE/Euronext as the investor does not care about platforms. It should be about specific products, and good regulatory practices, and not about promoting Kazakhstan…for an investor this is important,” he says.
But in the big rush to list, either on the LSE or via its main challenger, what importance do Kazakhstani companies actually put on having healthy and transparent corporate governance, something institutional investors usually hold in high regard?
On the NYSE/Euronext, three of the five Russian companies listed came out top in a recent Standard & Poor’s corporate governance league table, and this could have positive ramifications for its neighbouring markets. “It is essential to have best practice in place to access investor money and there’s no reason why Kazak companies can’t replicate this,” notes Mr Goldstein.
“Right from the outset, there has been a significant effort from local firms seeking a listing, to embrace corporate governance best practice,” says Oliver Hemsley, CEO at Numis Securities.
SEEING THE BENEFITS OF DIVERSIFICATION
The $12bn pension fund industry in Kazakhstan is finally waking up to the benefits of having a diversified investment portfolio. In recent months, money has been slowly ebbing away from domestic bonds and into equities and alternatives. “We now have an important shift from the fixed income mentality of local pensions,” notes Eldar Abdrazakov of Centras Securities.
“There is little liquidity in Kazak bonds so this is good timing,” he adds.
Establishing Almaty as a central Asian hub for investment products could also be catalyst for the local pension funds to better acquaint themselves with non-fixed income products. “The success of Almaty as a regional centre will depend on the flow of liquidity into the area,” comments Oliver Hemsley. “There is a great opportunity and the city is taking it very seriously,” he says, “and regulated market and fully operational KASE can only help with this objective.”
There are also a handful of private equity investors in the region, though according to Mr Abdrazakov, these are not mega funds. “We’re not quite at the Carlyle stage yet,” he adds.
