A SUPPLEMENT TO EUROMONEY/APRIL 1999: KAZAKHSTAN
Aiteke Bi 67 in Almaty, a C-block building which once housed the ministry of justice, is the nerve-centre of Kazakh capitalism. On the top floor is the National Securities Commission (NSC). The ground floor and basement contain the Kazakhstan Stock Exchange (KASE), and Afinex, the foreign currency exchange, with which it has recently merged for the second time; and the central securities depositary. Sandwiched between all this are roomfuls of advisers working on projects funded by the US Agency for International Development (USAID).
US taxpayers will be happy to learn that their tax dollars are still at work nurturing grass-roots capitalism in Kazakhstan. Grown men and women raised on Wall Street and the Chicago pits are devoting their lives to fostering a securities market, with the full paraphernalia of pension funds, joint stock company law, asset-backed securities, compliance and collateral management.
Despite a stock market turnover of almost zero – thanks to last year’s Russia crisis – the work goes on. One hot project is a bond issue for Vita, a sunflower oil producer, 150% collateralized with warehoused oil stocks, discounted to yield 19%, in dollars. Total proceeds will be less than $100,000.
“Size isn’t important,” insists David Lucterhand, adviser with Pragma Corporation, sub-contracted by USAID. He hopes this, among other issues, will be a curtain-raiser for a Central Asian bond conference on April 14 and 15 at the Dostyk Hotel, the sumptuous former communist party guest-house in leafy Almaty.
Lucterhand, who cut his teeth at the Chicago Board of Trade, is talking to 15 companies about securitization, and has a target list of 16 more candidates. “We’re convincing them of the virtues of hiring a financial adviser,” he says. Five full-time attorneys are putting together the framework for a transparent market. Lucterhand bursts with enthusiasm for capital markets, democracy and the American way. That is the not-so-hidden agenda: the spreading of US-style democracy, which bothers some Kazakhs, although they appreciate the good intent.
“The Americans are pushing for formal signs of democracy,” sighs Grigori Marchenko, president of DB Securities (Kazakhstan). “So we create political parties, non-governmental organizations, all that bullshit just to get US money.” The key is to develop proper markets, he says. The rule of law and establishing a proper court system is more important than paying lip-service to democracy: “If people are making enough money, they can start political parties and the government can’t push them around.”
Marchenko, as deputy governor of the National Bank of Kazakhstan (the central bank), then chairman of the NSC, before quitting for the private sector in October 1997, is famed as one of the architects of the country’s financial reform. But the US and German-educated technocrat is bitter about excessive US influence: “For the first three years [of the Confederation of Independent States (CIS) after the collapse of the Soviet Union] we got no advice on the German or Japanese model. East Asia was also discredited. It was USAID and the World Bank: the Anglo-Saxon model all the way. Intellectually we were too weak to fight with them.” Kazakhstan “has been the darling of the Bretton Woods institutions”, says Timur Issatayev who worked at the IMF before joining ING Barings in Almaty.
The result has been a market based on the 1933 US Securities Exchange Act. “We fought a lot with USAID, rewriting it in relation to Kazakhstan,” recalls Nurdin Damitov, until last year deputy chairman of the NSC, now director of Kazakhstan’s Agency for Investment, and a Columbia University law graduate. Millions of dollars of US money were wasted on the first dream, to build a pan-Central Asian Stock Exchange, then when neighbouring countries proved beyond the pale, downsizing the project, divorcing currency trading (on Afinex) from securities trading (on the Kazakhstan Stock Exchange) then this January deciding to merge them again.
The volumes are puny. Last year the fully electronic KASE turned over Kt9 million ($100,000) a day in equities, Kt90 million a day in government bonds, while Afinex averaged $5 million a day in currency trading. In January and February the volumes went even lower. “The equity market is nearly dead,” says Issatayev, representative of ING Barings in Almaty. ING was about to apply for a banking licence last summer, before the Russia crisis hit. Russia’s devaluation and debt moratorium last August 17 caused panic among investors in other former Soviet states regardless of their economic fundamentals. Kazakhstan is still suffering from that panic.
Some optimists see it as a blessing in disguise. It has forced Kazakhstan to scale down its ambitions, particularly its budget (a 25% cut last year, followed by another 10% cut in January), and to grow its capital markets from its own resources.
Given its macroeconomic conditions, and the fact that it is surrounded by states with close to triple-digit inflation and flooded with their cheap, low-quality goods, this landlocked country is doing almost everything right. It has upset the World Trade Organization by banning certain imports from Kyrgystan and Russia. But how do you protect your economy from dumping and devaluation when you kept inflation to 1.9% last year and your currency lost only 10% against the dollar?
Marchenko, who often takes the one-hour flight to the new desert capital Astana to advise the government, recommends more of the same this year: a crawling devaluation against the dollar of around 15% – “more than 30% would undermine confidence” – and selective use of import tariffs to protect certain sectors from destruction and unemployment. The danger is low-quality dumping. “You should allow quality goods to come in,” says Marchenko.
Although Kazakhstan is rich in resources – oil, gas, chrome, bauxite, uranium and gold – shipping the stuff out is a physical and political nightmare. Russia holds Kazakh exporters to ransom on transport and pipeline tariffs. (Kazakh trucks pay four times as much as Russian trucks to use Russian roads.)
Faced with these hardships, Kazakhstan has persevered with the Chile-style reform started by Marchenko. Jewel in the crown is its pension reform. This produced $280 million of savings last year, all invested in the securities markets, and is likely to swell to $750 million this year and $1.5 billion at the end of year three, say the optimists. Although that hardly represents a single portfolio rebalancing act in New York or London, it is big news in this land of 15 million people, with average per capita income of $1,500. The pension reform requires 10% of every person’s monthly salary to be invested in a choice of 13 managed pension funds. If you don’t choose, your contribution goes into a state fund managed by the National Bank. The major Kazakh companies and some smaller ones have managed pension funds. Kazkommertsbank, the country’s second biggest and best-run bank, for example, has the pension funds of Kazakhtelecom, Air Kazakhstan, and of its own employees, invested in its managed fund Umit. ABN Amro Bank Kazakhstan, a joint venture with Kazkommertsbank and the International Finance Corporation, manages seven funds, which deputy general manager Michiel de Bruijn admits are the smallest “but they are the best performers”, he boasts. The funds are 95% invested in government or National Bank securities. They may invest only 25% of their assets in corporate securities, and in fact only one fund so far has made an equity investment.
There is only around Kt64 billion ($710 million) of government securities available and that stock is diminishing as the government continues to squeeze the money supply. Of that debt about half is illiquid 10-year ministry of finance debt to the National Bank, which the National Bank has tried to securitize. It is used occasionally for repo operations, but the most tradable debt is one- to three-month treasury notes, or even shorter-term National Bank bills, discounted to yield 25%.
Last year Marchenko and others saw a way to add to the tradable domestic stock by listing the Republic of Kazakhstan’s two Eurobonds on the KASE. After the Russia crisis these bonds were temporarily yielding 50% – a real bargain for those bullish on Kazakh risk. ABN Amro, Deutsche Bank and others repatriated about $100 million of these bonds and sold them to the pension funds, making good money as the yield improved to around 11%. In February Kazkommertsbank also listed its $100 million Eurobond on the KASE but it can’t start trading until the central bank grants a licence. The National Bank is expected to put a limit on how much of a pension fund can be invested in Eurobonds, although the NSC is talking of listing more Eurobonds, such as those of the World Bank and EBRD.
The pension funds are desperate to diversify. But the government’s “blue-chip” privatization programme has stalled; it is listing small and medium-size enterprises piecemeal on the KASE, and the stock of equities so far is a mere $28 million.
Hence the interest in developing a corporate bond market – Kazakh investors have more appetite for debt than equity.
So far, only five corporate bonds are known to have been issued. “Maybe some were issued before 1995, but those were registered with the ministry of finance and the files may have been lost,” says chairman of the NSC Azamat Joldasbekov. “We found two such issues recently.”
These are very cautious attempts at securitization. NSC executive director Galina Shalgimbayeva mentions four recent bond issues: a Kt5 million toe-in-the-water by Farvarter, and another by Arai, both of the Kustanai region, then a Kt50 million follow-up by Farvarter, and a Kt100 million issue by Vita of Almaty – “but these haven’t been fully placed”, she says.
A better hope seems to be plans for dollarized bond issues by oil transport company Kaztransoil, the national power grid, and the state railways. Again, the sizes are puny. ING and local broker-dealer KIB Asset Management (a subsidiary of Kazakhstan International Bank) are planning a $3 million to $3.5 million six-month domestic bond issue for Kaztransoil, which is at the limit of what the market can take – the original plan was $10 million. It would be discounted to yield around 15% in dollars, but all accounting and settlement would be in the local currency, the tenge. The tax authorities have been persuaded to count the accrual as a capital gain. “We thought of tying it to client receivables or a local bank guarantee,” says ING’s Issatayev, “but the pension funds don’t seem that sensitive [to credit].” According to other experiences local banks are demanding 6% up-front for a guarantee in tenge, mainly because of the central bank’s squeeze on the tenge money supply.
To be eligible for pension funds a security must be on the A list at the KASE, rather than the B list. (There is also a misleadingly named OTC (over-the-counter) list for the smallest companies.) An A listing requires two years of audit to international accounting standards (IAS) and a minimum corporate net worth of $10 million. USAID representatives are trying to get that threshold reduced to $5 million. They are also excited about starting a municipal and project-linked bond market. Muni bonds are likely to be discussed at the April bond conference. But the municipalities (oblasts) are often a law unto themselves. Getting them to sign and stick to agreements on repayments and use of funds could be difficult.
Kazakhstan’s financial regulation tends to be extremely tough after the free-for-all of earlier years. For example, Shalgimbayeva at the NSC is agonizing over another proposed bond issue by a grain-growers’ cooperative, sweetened with warrants to buy grain. “We are reluctant to get into commodity regulation,” she says. In 1996 Kazkommertsbank dreamt up a scheme whereby grain farmers issued bills of exchange (veksels) on their future grain harvest receivables against Kazkommerts credit for fuel and spare parts. “It was highly profitable for Kazkommerts but harmful to agriculture,” recalls one source, since the farmers couldn’t pay and the ministry of finance had guaranteed the bills. Agriculture is an ailing sector in Kazakhstan. Farmers can’t get credit, particularly since they can’t pledge land as collateral. It is a common view that agriculture in Kazakhstan should shrink to a sustainable level, but that runs counter to received ideas of economic advancement. The World Bank is pouring more money into Kazakh agriculture than it can absorb, says at least one agronomist.
In 1997 and early 1998 Kazakh borrowers were carving themselves a nice little niche in the international capital markets. The republic had issued a total of $550 million of Eurobonds, Kazkommertsbank had placed American and global depositary receipts and Eurobonds totaling $100 million, and Halyk Savings Bank (the country’s biggest) had done three share issues placing 20% of its equity and had successfully roadshowed a $100 million Eurobond to be led by Lehman Brothers. Then the Russia crisis hit. Halyk pulled its Eurobond.
Since then, access to international creditors has been limited. Ispat Karmet steel works managed to put together a $100 million syndicated credit with the help of the European Bank for Reconstruction & Development (EBRD). Kazkommertsbank and Bank TuranAlem are discussing club loans. “We’re talking about paying 6% over Libor for one-year money,” laments Oleg Kononenko, board member of Kazkommertsbank. “We used to pay that for three-year money.”
Various investment banks are trying to persuade the republic to revisit the Eurobond market. JP Morgan has the original mandate, but ABN Amro, for one, believes it has identified investor demand. However, the sticking point may be the price. Kazakhstan is used to paying around 11% for its dollars. Current price indications are around 13%.
Dollarization of the entire Kazakh economy is a possible route to take, although Marchenko warns that to dollarize too early could destroy uncompetitive sectors and cause widespread unemployment. Most prices, salaries, rents are already reckoned in dollars, even if the accounting is done in tenge. Although drivers, restaurateurs, interior decorators aren’t supposed to accept dollars they frequently do. Some casual workers insist on them.
Marchenko flew to Astana on March 12 to discuss this year’s exchange rate policy and argued for the crawling peg. “Dollarization is not viable short-term. We would be totally non-competitive with Russian and Ukrainian producers.” A 6,000-kilometre border is difficult to police, he points out. But “with currency blocs en vogue”, he believes dollarization might be an option in three to five years.
Kazakhstan could follow the Chilean model (pension reform), or that of Panama (dollarization). For Marchenko so far it’s been the Chilean. “We’ve had the triangular approach,” he says: pension reform, capital markets and privatization. “If you take away privatization it doesn’t work.” Unfortunately that has been the experience in Kazakhstan. A voucher privatization of smaller state assets ended in a collapse of the privatization funds. Then a privatization of larger, “blue-chip” companies stalled because of poor interest in the paltry 2% to 5% stakes on offer. Another big stumbling-block, as in Russia, is the lack of title to land ownership. Marchenko argued for a big sell-off in 1997 “when we would have got prices 10 to 15 times higher than today”. Even today it would be worth selling these assets for around $3 billion to $3.5 billion. “You don’t need that much money to meet the budget deficit, and buying assets cheap is what brings the feelgood factor,” Marchenko says.
Although some 80% of Kazakhstan’s oil and gas industry is already in foreign hands, the experience of foreign investors in other sectors has been marred by disputes. They mostly concern pricing or production levels and demonstrate the importance of drawing up watertight contracts in the first place. A minister’s signature doesn’t mean much if the minister is replaced; if more than one ministry is involved in an agreement then each ministry must sign it; an agreement with central government can’t assume the assent of the regional governor – all must be bound in.
In the early gold-rush days, when the government and investors were in a hurry to sign and get into production, many of these pitfalls were overlooked. Now that turnover is low, western investors are sometimes looked on as a pool of cash to make up revenue. Tax inspectors are subjecting businesses to “low-level harassment”, say some investors. One bank which hesitated to pay an unclear tax bill had its accounts frozen, to the detriment of depositors and its entire business. A proper salary is the way to reduce corruption, says Marchenko: “The key issue is the civil service: it’s cheaper to bribe than pay taxes.”
Various foreign owner-operators of power stations and other industrial plant have fallen foul of agreements they believed had been tried and tested several years ago. AES Corporation of the US which owns the biggest power station in the country, Ekibastuz, has 17 lawyers trying to reach a negotiated settlement with the government on power purchase agreements. International arbitration won’t necessarily help in these cases, although Kazakhstan is a signatory of the New York convention. “How would you get paid?” asks a lawyer rhetorically, “You don’t resolve things by arbitration but by negotiation.”
Tractebel of Belgium, which owns Almaty Power Consolidated, also has an ongoing tax dispute. World Wide Minerals of Canada is also fighting the government for what it regards as a breach of contract worth $220 million, concerning extraction of uranium concentrate at Stepnogorsk.
Perhaps the most bitter dispute is that between the government and Trans-World group of the UK, which owns – or thought it owned through a joint venture – a ferro-alloy and ferro-chrome works, various mining operations and an aluminium smelter in Kazakhstan. The Kazakh supreme court on January 27 awarded $200 million damages against Trans-World. Although this seems capricious, Kazakh sources say that the TW group didn’t meet taxation and various other obligations. The whole affair is damaging to Kazakhstan’s investment climate and, says one disinterested lawyer, “there are questions raised about the way in which the supreme court’s decision was achieved”. Kazakhstan courts “are not terribly transparent”, says another. “Kazakhstan does what it likes, and judicial reform is not going to happen.”
In his office in Astana, director of the Agency for Investment Nurdin Damitov admits: “The courts are sometimes not effective and sometimes not fair. It’s a problem of the whole system in Kazakhstan.” The agency exists to intervene with ministries and other government departments in favour of the foreign investor and to negotiate tax breaks. But stuck in Astana – whose temperature varies from minus 40 in winter to plus 40 in summer – the agency is generally remote from any dispute. It’s also mostly concerned with new investments, not old agreements that are beginning to fall apart. “All the clients with problems,” says an Almaty-based lawyer, “don’t go to the Agency for Investment to solve them.” He identifies as the main cause of disputes “a lot of tension between the regional and central governments”.
President Nursultan Nazarbayev, re-elected in January to a third five-year term, has lent an ear to investors’ complaints. Last September he convened a foreign investment council (FIC) attended by foreign captains of industry with major investors in Kazakhstan. On the Kazakh side were Nazarbayev and senior ministers. “The agenda and the papers were controlled by foreign investors,” says one participant. The FIC established several working groups including ones on legal issues, taxation, and how to improve Kazakhstan’s investment image, which will report initial findings this month. A second FIC meeting is scheduled for June 2, three weeks before prime minister Nurlan Balgimbayev chairs a Kazakh investment conference in London.
Image building is perhaps the most important but least tangible task of the FIC. Kazakhstan has a job persuading foreign investors that it is different from all its neighbours, and that its dependence on trade with Russia has dramatically diminished. “Less than a quarter of our exports go to Russia now,” says Marchenko. “We have far bigger trade with the EU, although it’s true more than half our imports are Russian.”
The stability of Kazakhstan is often overlooked, perhaps because, on paper, it’s a less democratic country than even Russia or Ukraine. Few Kazakhs, apart from the followers of deposed former prime minister Akezhan Khazegeldin, seem too concerned by this. “Economic efficiency is more important today than social justice,” says a Kazakh banker. The new element in Kazakh society is a swathe of young, mostly foreign-educated, technocrats who occupy top agency and ministerial posts. Many of them did a stint at the National Bank of Kazakhstan, which has a reputation for effectiveness and integrity. Many are also close to the private sector, in fact some of them have links to major Kazakh industrial groups. Minister of energy and trade Mukhtar Ablyazov, used to run Astana Holding, which among other things owns Bank TuranAlem. Finance minister Uraz Jandosov, former National Bank governor, is said to be close to Kazkommertsbank, the centre of another industrial grouping, “although that may be simply because it’s intelligently and successfully run”, suggests one source.
The link between big business and government may leave foreign investors uncomfortable, but most learn to live with it. Attempts to win influence in the corridors of power are fraught with difficulty for the outsider. “It’s a hornet’s nest,” says one western lawyer. “Investors spend a huge amount of management time dealing with government corruption and interference. For example, government ministers interfering with the judicial process.” Some investors conclude that you have to cheat to get ahead.
Those with a long-term view of Kazakhstan are bullish about its future, because they believe it is doing everything it can to stabilize its economy. One such is Martyn Nicholls, resident representative in Almaty of the EBRD who admires the toughness of the government’s budget cuts and its pessimistic forecasts for the years ahead. “Where else do we have direct access to the president?” says Nicholls. “This is a country where we can make a difference.” The EBRD helped set up the Foreign Investment Council and more than doubled its operations in Kazakhstan in the 12 months to June 1998 to around $550 million of lending and investment.
At the micro level, the EBRD has an investment fund designed to commit no more than e5 million at a time to private-sector projects. Its average investment is around e2 million. “We have great trouble identifying good projects,” says Michael Waxman-Lenz, who has run the so-called GIMV Kazakhstan Postprivatization Fund for three years. About a third of the fund’s e33 million has been invested, with another 10% approved. Joint venture partner GIMV of Belgium chipped in e3 million. Often the investment is accompanied by an EBRD loan “which gives us additional creditor rights, and serves as an early warning system on likely problems,” says Waxman-Lenz. More and more he is looking at joint ventures with some input from foreign management, since local management skills don’t suffice.
US government money set up a $150 million Central Asian American Enterprise Fund, covering five central Asian countries, which has invested around $30 million in Kazakhstan. The fund’s chief investment officer John Owens praises Kazakhstan’s efforts to develop a legal and regulatory framework for investment: “Investors have more flexibility here for creating debt with equity features, loans with warrants or options, than in other central Asian republics.” One of the objectives of the US funds in former iron curtain countries is to attract parallel investment. Owens believes such money wouldn’t want to target specific central Asian countries today, but “it might be possible to raise a sector-specific fund”, he says. He’s planning to launch at least three sectoral funds in the region this year, but won’t say which sectors he has in mind.
Of the totally private funds only two, AIG Silk Road Fund and Kazakhstan Investment Fund (KIF) have resident managers in Kazakhstan. “We’ve made no equity investments since October 1998,” says Javier del Ser who runs KIF. It has 47 equity investments in Kazakhstan totalling around $32 million, of which the biggest is a stake in Almaty Power. Another $8 million is invested in debt instruments, but not Kazakh T-bills. One opportunistic investment was in Kazakh government debt held by “a nervous bank”, del Ser won’t say which. KIF bought a $5 million participation in a syndicated loan at a yield of 30% and it was paid off by the ministry of finance in mid-March.
AIG Silk Road Fund has $70 million to invest in eight central Asian countries. Scott Foushee who runs the fund won’t say how much has been invested in Kazakhstan over the fund’s 18-month life. “The environment is worse than a year ago, because of the oil price and the Russia crisis,” he says. Investment in securities is hardly an option for this pure equity fund, but it has invested in one Kazakh company listed as an OTC stock, Foushee says.
In the basement of Aiteke Bi 67, in what looks like a lecture hall, a handful of dealers sit in rows at their screens. From 10.15am until 11.00am they trade currencies, mostly dollar against tenge although Deutschmarks and euros are also quoted. From 10.30 until 11.15 is the time for futures, although since mid-February no-one has been prepared to make a market. Most of the time the National Bank is the only seller of dollars, and the NBK deals from a remote terminal. There is no reason why dealers should come to the exchange, since it’s entirely electronic. But the terminals were established there when communications were bad, even within Almaty: telephone connections still frequently go dead in mid-conversation. But banks are also able to deal foreign exchange over-the-counter. Perhaps their only reason for using the exchange is to buy dollars from the NBK which seldom deals interbank.
At 11.30 it’s the turn of the stock market and the bank dealers hand over to the securities brokers. Equities are traded only for an hour. But government securities and corporate bonds (such as they are) are traded until 18.00. Repos are also traded. Since banks insist on taking collateral for interbank lending, the repo market substitutes for a short-term money market.
USAID advisers persuaded the ministry of justice to outlaw all trading of securities off the exchange, in the interests of a transparent market. Even if deals are agreed on the telephone, the bids and offers must be entered electronically for all to see. The only exceptions are share deals comprising fewer than 50 shares.
In March the NSC spotted that $2.5 million of equity trades involving three broker-dealers had been transacted off-exchange. The NSC is also pursuing two enforcement actions, one is the case of a broker absconding with customer proceeds, the second is a company’s failure to pay a dividend which shareholders had voted.
Despite the low level of capital markets activity, investors keep calling, says Madina Dushimova, director of research at Kazkommerts Securities. She finds her biggest task is explaining why Kazakhstan is different. That’s made more difficult because government officials, who should be giving the same explanation, are mostly in the new capital Astana. Astana was inaugurated in a grand ceremony last June. Finding officials’ telephone numbers is still a problem. Despite the extremes of heat and cold, some of the new technocrats like the challenge and the austerity. Even government ministers need to get permission to leave Astana for the fleshpots of Almaty. “In Astana you just work,” says a US-educated young technocrat. “It’s a kind of fraternity, although we don’t really mix with the locals – apart from my driver of course. State service is like a drug.”
What crisis?
Banks worldwide took a pasting from the Russian crisis, but not the banks in Kazakhstan. Why? Because they’d been through a Russian crisis two years earlier and they knew what to expect. Tveruniversalbank, one of the premier Russian banks of the day, collapsed in July 1996. It had been the main correspondent bank for rouble trade not only with Kazakh banks, but also with the National Bank of Kazakhstan. Kazakh banks ended up losing a mere $6 million in the fiasco, although their customers lost more. The Interbank Currency Exchange in Almaty also lost $180,000 in positions with Tveruniversal.
It was a timely shock. By August 1998, when the Russia crisis hit, Kazakh banks had few rouble positions and only well-covered dollar positions with Russian banks. They had also been warned by the National Bank to get out of Russian treasury bonds – GKOs.
The Kazakh banking sector is tightly controlled by the National Bank. After the central bank let Kramds-Bank go down in October 1996 there has been no nonsense about moral hazard, although the government did later step in and merge two ailing banks, Promstroi and the Kazakh branch of the Soviet Vnesheconombank, to form Bank TuranAlem in January 1997. It was privatized in March 1998. The banking sector is divided into two tiers. Tier one banks must undergo an external audit by a big-five accounting firm, and their BIS ratio had to be at least 10% by January this year. Tier two must conform to these standards by the end of the year. Many of Kazakhstan’s 70-or-so smaller banks will be closed, merged, or reduced to credit cooperatives.
The three main banks, Halyk Savings Bank, Kazkommertsbank, and Bank TuranAlem account for 70% of the deposit base. Only Halyk Bank is still state-owned, but the state intends to reduce its 80% stake further.
Kazkommerts is the star bank, having formed three useful joint ventures in its early days. ABN Amro Kazkommerts is a profitable bank, in which Kazkommerts and the International Finance Corporation (IFC) each have a minority stake. Kazkommerts bought out the share of Turkish broker Global Securities in their joint venture Global Kazkommerts Securities in October 1997. Now Kazkommerts Securities is going it alone as the major broker-dealer in Almaty. Global continues, but is shrinking its Kazakh presence. Kazkommertsbank also sold its share in Kazakhstan-Ziraat International to Turkey’s Ziraat Bankasi. “We’re a very opportunistic bank,” says Kazkommerts board member Oleg Kononenko. Kazkommerts recently pulled out of a leasing venture with the IFC. “But the ABN Amro Bank is a strategic investment which we’ll have forever,” Kononenko says.
Bank TuranAlem has a tiny capital of $50 million but is extremely profitable, with a 40% return on equity last year. Moreover it isn’t over-leveraged, having a BIS ratio of 19%, the highest among Kazakh banks. It is part of Astana Holding, the biggest industrial group in the country, is the chief corporate bank and second in retail after Halyk Bank. Before the Russian crisis there were plans to issue global or American depositary receipts, and participation by the IFC or the EBRD has been discussed, says TuranAlem chairman Erzhan Tatishev.
ABN Amro has had a presence in Kazakhstan since 1994. Now it has competition from Citibank, Société Générale, Deutsche Bank and HSBC, which recently opened subsidiaries. Citibank and SG are going for corporate and trade business, but HSBC is also tackling retail and securities custody. Deutsche has gone for a broker-dealership, DB Securities, as well as a banking subsidiary and reports to London not Frankfurt. “We see a lot of potential in developing low-tech industries where the country can compete,” says Timur Dzhankobaev, vice-president for corporate finance. He indicates areas such as foodstuffs and beverages “which are dominated by imports”. Dzhankobaev was a board member at Kazkommertsbank before running the joint venture Kazkommerts-Ziraat International. Locals say the market is already has too many foreign banks. The National Bank had a rule that foreign bank equity should not exceed 25% of all the banks’ equity capital, but that threshold has already been breached.
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