It has become increasingly popular to some Kazakh companies to raise capital in Europe through Initial Public Offerings (IPO), the sale of common shares to public investors. Kazakhmys and KazMunaiGas (through its subsidiary KazMunaiGas E&P) have already successfully raised $1.16 billion and $2.03 billion on the London FTSE respectively (KazakhAltyn, or Kazakh Gold, is also listed in London. Kazakhstan’s largest bank Kazkommertsbank is in the midst of its first IPO at the same stock exchange right now, and in a perfect-case scenario, the company could raise as much as $5.3 billion.

The German Deutsche Börse is also active on the Kazakh market: The Frankfurter Allgemeine Zeitung reports (GER) that the company that runs Europe’s second biggest stock exchange in Frankfurt will assist Kazakhstan in the design of Almaty stock exchange. The Kazakh institutional body charged with the development of the stock market carries the fancy name of RFCA (Agency of the Republic of Kazakhstan on regulation of activities of the regional financial center of Almaty City). The stated aim of the cooperation is to promote dual listings (in Frankfurt and Almaty) and joint research projects. During his upcoming visit to the UK, Kazakhstan’s President Nazarbayev will also ink an agreement between the London Stock Exchange and the Almaty Regional Finance Center.

The drive of Kazakh companies to Western stock market has several ramifications. First, European legislation on compliance and transparency legally binds Kazakh companies to disclose a lot of information on their assets and cash flows. It’s also interesting to see which consulting companies are helping these Kazakh giants to comply with Western regulations. The question who eventually buys the shares, i.e. for whom an investment in Kazakh companies seems viable, inevitably comes up, too.

When Kazakhmys started its IPO last year, Times author Louise Armitstead had a closer look at the company and wondered whether it deserves to be a blue chip (it is now the 49th biggest company on the FTSE 100 with a market capitalisation of GBP 5.53 billion). The company’s CEO Vladimir Kim is close to President Nazarbayev and Kazakhmys’s CFO Oleg Novachuk admitted that the President’s brother is on the board. Also, Nazarbayev has taken every personal effort to meet potential investors by the time of the IPO in 2005, convincing them of the government’s support for the mining conglomerate. The head of the Risk Assessment Group in Almaty, Dosym Satpaev, already fires a warning:

“Practically all big companies are controlled by the President’s family. It’s safe for foreign investors, but only as long as this particular elite stays in charge.”

Another issue is that an IPO requires a lot of transparency in accounting from the companies’ sides. Kazakhmys found it so difficult to comply with the LSE reporting requirements that it walked away from its previous auditor KPMG and is now with Ernst and Young (which employed 156 people to go through the company’s books). Credit Suisse and other big investment banks plus top-notch international lawyers are helping Kazakh companies with their listings, cashing in on their “IPO-bug”.

Sean Roberts mentioned another important point in October related to KazMunaiGas’s IPO. As the company is practically a state-owned asset, the opposition party “Real Ak-Zhol” condemned that the IPO essentially strips the Kazakh population of their deserved revenue. What is also interesting is that the Kazakh IPOs to-date have seen their most ardent buyers in the form of Kazakh investors.

However, one anonymous comment on the blog is more upbeat:

soon-to-be-boiling pot. This is a great step towards transparency in Kazakhstan: to an extent, the government (ie, KMG) will be forced to show the world its’ underwear four times a year, and on-time.

It’s completely true that the lower classes have gotten ripped off on this flotation as your list of elite investors indicates. However, the silver lining to this cloud is the above: while issuing coupons to local citizens might have been expedient politically, the transparency of KMG would have been delayed for years to come. Thus, the ultimate windfall to Kazakhs has actually been accelerated by KMG’s own disclosure. This means that KMG will be forced to run a very efficient and effective operation…which in the long run will benefit Kazakhstan.

Further planned London listings:
Air Astana, airline
Halyk Bank, most profitable bank
Bank TuranAlem, third-largest bank
Eurasian Industrial Ass’n, holding group
KEGOC, electricity KazTelecom, telecoms