When Kazatomprom listed on the London Stock Exchange in mid-November 2018, there were hopes that Kazakhstan’s long-touted privatisation might finally get underway.
The $400.8 million share sale of a 15% stake in the national uranium producer in London and on the Astana International Exchange was deemed a success. It was the first international Central Asia privatisation since 2006, its global depositary receipts (GDR) traded up 3.4% on their debut, and right behind Canada’s Cameco, Kazatomprom became the second-largest publicly traded uranium miner in the world.
But the flurry of privatisations that many hoped would then materialise have failed to appear. The oil-rich Kazakh economy – a lynchpin of China’s Belt and Road Strategy – remains overwhelmingly in state hands with around 70% of GDP derived from publicly owned companies. Aside from the further sale of a 3.8% stake in Kazatomprom towards the end of September last year (embarrassingly, GDRs are down 7.7% since then), nothing has emerged.
No wonder then that US-based political risk consultancy Eurasia Group describes the country as “stuck in transition”.
Formed following the breakup of the Soviet Union, Kazakhstan was ruled for almost 30 years by president Nursultan Nazarbayev. A classic Central Asian strong man, he has taken a tough line with anyone or anything that could challenge his status quo. In the 2015 elections, for example, he claimed to have won 97.7% of the vote.
Although he stood down in March last year in favour of Kassym-Jomart Tokayev, the then speaker of the upper house of parliament, Nazarbayev remains chairman of both the security council and the ruling Nur Otan party. “It seems like continuity,” is how one banker describes the business climate.
Nazarbayev is very much still in charge, one of the reasons that all of the bankers that FinanceAsia talked to for this story were more than usually coy about going on the record.
Three privatisations had been expected last year. Stake sales in national oil company KazMunayGaz (KMG), national telco Kazakhtelecom and the national airline Air Astana. But none appeared with markets spooked by the familiar mixture of the Sino-US trade war, ongoing US sanctions against both Russia and Iran, and general market malaise.
At the end of November, finance minister Alikhan Smailov explained to parliament that the sales had been delayed in order to achieve better valuations. A few days later, Almasadam Satkaliyev, managing director of the Samruk-Kazyna sovereign wealth fund, told Reuters news agency that preparations were underway and, subject to market conditions, they were ready to go.
This view of delay rather than cancellation is confirmed by investors. “Locally, people were hoping for better valuations and that puts the brakes on things a little bit,” said one banker.
Even if cynics suggest that the push to privatise in 2020 comes partly from pressure from the International Monetary Fund and the World Trade Organization, there is a sense now of real movement from these deals. All three companies are looking for dual listings in London and on the Astana International Exchange, to help bolster the domestic exchange.
Most are betting that the up to 25% listing of KMG will appear before the summer, and its appearance is likely to be greeted enthusiastically thanks to supportive oil prices. “I'm pretty confident that this one will take place in 2020,” confirmed one banker.
The reasons for the delay to KMG’s initial public offering (IPO) are not difficult to fathom. The oil and gas giant is looking to raise between $3 billion and $5 billion and bankers explain that the IPO of Saudi Arabian oil behemoth Aramco had to get out of the way first.
But KMG is not likely to appear in the markets immediately. “The impression I get from talking to people is that they're likely to go ahead but it is not necessarily going to be first quarter business,” said one banker.
Were it to appear in the first quarter, then it would have to be off the company’s third-quarter figures. And both the company and the markets would prefer the prospectus to have full-year figures. A second quarter IPO is much more likely.
As for the other two listing candidates, bankers will not be drawn on timings other than to say that they are expected this year. Sovereign wealth fund Samruk-Kazyna is looking to sell a 10% stake in Kazakhtelecom which has a market capitalisation of $944.3 million, according to Thomson Reuters data.
Air Astana, which is a 49/51 joint venture between BAE Systems and Samruk-Kazyna, is notably smaller. But with a 17% rise in traffic last year, even though it is expected to be looking to raise only around $100 million, it will not be hard to find buyers.
J.P. Morgan and VTB Capital have been connected to the former deal, and J.P. Morgan and UBS to the latter.
The pipeline of future privatisations looks healthy too. National rail company Kazakhstan Temir Zholy, the postal service KazPost and Samruk Energo, which holds government stakes in metals and mining companies, are the most likely candidates. Any delay in privatisation there will be because of the need for internal restructuring before they hit the markets.
Bankers remain cautiously optimistic about the deals this year and emphasise that investor appetite remains undimmed. “I don't think there is any been any change of appetite to Kazakhstan or the region. It is still there. Of course, it is still a frontier market, so it's a specialised play. It's quite niche and is not for everybody, but for the people that were looking at it, they are still looking at it,” said one.
