News Roundup - July 31, 2007

Financial Times: Oil Group Warned Over Delay to Kazakh Project
Kazakhstan has warned a foreign consortium led by Eni, the Italian oil company, that it will demand better terms at the giant Kashagan oilfield in the Caspian Sea to compensate for soaring costs and the delayed launch of production at one of the world’s most challenging oilfield developments…
Reuters: Indicators - Kazakhstan - July 31, 2007
Kazakhstan’s economic indicators based on data provided by the State Statistics Agency, government institutions, the central bank and exchanges…

News Roundup - July 30, 2007

CNN Money: Kazakhstan Threatens To Revise ENI Kashagan Oil Field Deal
Kazakh prime minister Karim Masimov said his government may revise Eni SpA’s contract to develop part of the Kashagan oil field in the Caspian Sea after the Italian oil company last week said it would delay the start of production by two years, Interfax reported…
Reuters: Kazakhstan Demands Better Terms Over Kashagan Oil
Kazakhstan told multinationals led by Italy’s ENI they would pay the price for being too slow and spending too much to tap its vast Kashagan oilfield, saying it would secure a better deal…
Reuters: TNK-BP Eyes Kazakhstan As Russian Tax Bites
Russia’s No.3 oil firm TNK-BP, half owned by BP Plc, wants to gain footholds in Kazakhstan and Turkmenistan amid concerns over a heavy Russian tax burden…
Energy Digital: TNK-BP Looks Beyond Russia
TNK-BP, Russia’s third largest oil firm, is looking to gain footholds in Kazakhstan and Turkmenistan to address concerns over a heavy Russian tax burden…
Seeking Alpha: Transmeridian Exploration: Attractive E&P Player From Kazakhstan
Transmeridian Exploration (TMY) is engaged in the business of development and production of oil and gas properties. Its activities are primarily focused on the Caspian Sea region of the former Soviet Union and its principal property, the South Alibek Field, is located in Kazakhstan. It focus on fields they believe have high potential upside with little risk…
Ferghana.ru: Nazarbayev’s Former Son-in-law Fears Deportation to Kazakhstan
Rahat Aliyev, Kazakh president’s former son-in-law and central figure of the worst political scandal in Kazakhstan in years, appealed to the ambassadors accredited to the OSCE headquarters. With criminal charges awaiting Aliyev in Kazakhstan, he himself is in the capital of Vienna where he was already arrested on Astana’s request but released on bail (1 million euros). The Austrian authorities ponder deportation of the recently nearly omnipotent Kazakh official…
Ferghana.ru: Snap Parliamentary Election Will Take Place in Kazakhstan on August 18. Three Political Parties Will Be Vying for Election
Publicity campaign is under way in Kazakhstan. Political parties make the same old promises: to up, support, reinforce, and so on. Needless to say, three political parties are energetic at this point: presidential People’s Democratic Party Nur Otan, Ak Jol loyal to the regime, and National Social Democratic Party of the opposition…
Eurasia Insight: Questions Surround Tour De France Doping Scandal
Spanish cyclist Alberto Contador may have cinched the 2007 Tour de France, but for Kazakhstan’s media, the doping scandal surrounding Team Astana captain Alexander Vinokourov continues to linger on. While some have voiced conspiracy theories about alleged moves to rid the race of a strong team in favor of rivals, others see the action as regrettable, but justified…
Reuters: Indicators - July 30, 2007
Kazakhstan’s economic indicators based on data provided by the State Statistics Agency, government institutions, the central bank and exchanges…

News Roundup - July 27, 2007

The Economist: Security Versus Democracy
If you believe in realpolitik, it is a no-brainer. Kazakhstan should chair the Organization for Security and Co-operation in Europe (OSCE) in 2009. If you believe in the principles of democracy on which the OSCE was founded, the question of Kazakhstan is a no-brainer too: an undemocratic country should not chair one of the continent’s main democracy-promoting organization…
Radio Free Europe / Radio Liberty: Kazakhs, Uzbeks Strengthen Media Grip Ahead Of Slated Elections
Two Central Asian republics are scheduled for elections in the coming months, with parliamentary elections set for mid-August in Kazakhstan and legislation calling for a presidential poll in Uzbekistan in December…
BusinessWeek: Reports Warns Against Many Internet Rules
Kazakhstan and Georgia are among countries imposing excessive restrictions on how people use the Internet, a new report says, warning that regulations are having a chilling effect on freedom of expression…
ARS Technica: The Internet in Kazakhstan: Welcome to the Land of $3,355 Per Month DSL
A new report from the Organization for Security and Cooperation in Europe (PDF) paints a grim picture of Internet access in Kazakhstan and shows how difficult life can be for those in poor and authoritarian countries who want to join the worldwide community of Internet users…
Radio Prague: Repatriating Kazakhstan’s Ethnic Czechs
Since 1994, the Czech Interior Ministry and NGO People in Need have been working to repatriate Kazakhstan’s ethnic Czechs. So far, over 700 have been brought back to the Czech Republic. This week, the Czech Interior Ministry upped the pace, asking for more money to carry out the repatriations, and promising to have the remaining 170 expats home by October. So far, so good - 57 of the final 170 touched down at Prague’s Ruzyne airport on Thursday…
CACI Analyst: Election Authorities in Kazakhstan Warn of ‘Black PR’ Syndrome
As contenders for seats in parliament rev up a vigorous publicity campaign, candidates increasingly resort to dirty methods in order to damage the reputation of their rivals and win the favor of the electorate. In Kazakhstan, dishonest tactics used in election campaigns is almost normalcy. The latest wave of blackmailing and smear reduces the promises of the Central Election Committee to hold fair and transparent elections to empty words…
Reuters: Indicators - Kazakhstan - July 27, 2007
Kazakhstan’s economic indicators based on data provided by the State Statistics Agency, government institutions, the central bank and exchanges…

Buying into Kazakhstan’s Booming Stock Market

As the equity markets around the world keep on delivering double-digit returns, investors venture further and further out into the periphery of emerging markets to find untapped sources of alpha. “Established” emerging markets like South Korea, Turkey or Taiwan are part of portfolio investors’ mainstream nowadays, and markets like Vietnam or Azerbaijan that nobody would touch with a pole just a few years ago become all the rage for adventurous investors seeking high returns. Kazakhstan, after five years of double-digit growth, appears to be profiting from the increased appetite for risk as well. Several specialized equity funds have been launched in the last year that focus on Kazakhstan and have ridden the wave of interest in this Central Asian country.

While the Kazakhstan Stock Exchange (KASE) remains small and illiquid and its listings are largely nominal, a growing number of Kazakh companies seek financing in the West and register their shares as GDR’s on exchanges in Frankfurt or London. Kazakhmys, the Kazakh copper mining company, even listed its primary shares on the LSE and is a constituent of the FTSE 100 share index. The Vienna stock exchange Wiener Boerse launched an investable Kazakh Traded Index (KTX) last month that includes the most actively traded stocks and Global Depositary Receipts (GDRs) of companies with their principal business activities in Kazakhstan and listed on the London Stock Exchange: Kazkommerzbank, Kazakhmys, KazMunaiGas Exploration Production, Halyk Savings Bank and KazakhGold Group. These recent developments have allowed investors to cash in on Kazakhstan’s booming oil economy without having to go through the KASE.

In the last year, several high-profile launches of hedge funds focusing on Kazakhstan and Central Asia have made headlines. One was the launch of the Sturgeon Fund by former Permal analyst Clemente Capello. The fund is a Cayman Islands-based vehicle which primarily invests in fixed-income and equities of the Central Asian countries of Azerbaijan and Kazakhstan. The other was May’s launch of Tau Capital, a joint venture between British Spencer House Capital Management and Kazakh Compass Asset Management. The fund, which is traded as a closed end fund on London’s AIM, raised $250 million against an earlier target of $200 million. Later the same month, Compass with Capital Partners Securities floated the Compass Kazakhstan Fund on the Irish Stock Exchange. In addition to these two products, Compass is looking to launch a third fund, Compass Kazakhstan Ltd., at the end of September. Minimum value of one stake in Compass Kazakhstan Ltd. is set at $2 ml, Tau Capital - $100,000, Kazakh Compass Fund - $10,000.

The funds invest in both public equities of companies focusing on Kazakhstan traded as GDR’s on western stock exchanges and the KASE (at least 50 percent of the fund) and private companies in various stages (up to 50 percent). Furthermore, the fund may invest on companies operating in other Central Asia countries, equity derivatives and commodity futures, and real estate projects. The fund will operate as a long/short portfolio with up to 50 percent leverage. Compass Asset Management has been running three other mutual funds marketed in Kazakhstan since 2005 with considerable success, their annual returns range from 26.19% to 38.01% with Sharpe rations ranging between 1.20 and 1.77.

While Compass as a domestic investment company with cleverly structured partnerships may be the leader in portfolio investment in Kazakhstan, the country has received much attention from other fund groups as well. Many Russian focused investment managers add Kazakh holdings to their portfolios, and even start their own Kazakhstan-focused funds.

Investors with a very healthy appetite for risk wanting to expand their portfolios to cover Kazakhstan have many options that did not exist as recently as three or four years ago. But it is wise to remember that investing in Kazakhstan comes with serious risk, as the latest, rather disappointing Kazakh debut on the LSE has shown.

News Roundup - July 26, 2007

BBC: Kazakhstan Doctors in HIV Protest
Nearly 50 doctors in Kazakhstan have resigned in protest at what they call unprecedented pressure on them over HIV infection in the region’s hospitals…
Radio Free Europe / Radio Liberty: Kazakh Minister Promises Greater Media Freedoms
Kazakhstan’s minister of culture and information says his country is committed to developing freedom of speech…
The Jerusalem Post: Kazakhstan - a ‘Great Success’
Those of you familiar with Borat may have the impression that in Kazakhstan cars are pulled by donkeys, but the reality is quite different. In fact, Kazakhstan, today, is viewed as one of the most exciting emerging market economies in the world…
International Herald Tribune: Kazakh cycling officials react with disbelief to Vinokourov’s doping disgrace
One of Kazakhstan’s top cycling officials said the country’s disgraced cycling star Alexandre Vinokourov may have been targeted by Tour de France organizers who didn’t want him to win the race…
Forbes: Celtic Resources Buys Remaining 25 Percent of Zherek for 660,000 USD Cash
Celtic Resources Holdings PLC said it has purchased the remaining 25 pct of Zherek LLP for 660,000 usd in cash, taking its total ownership to 100 pct…
Kazinform: Kazakh Ambassador Delivered Credentials to U.S. President
Extraordinary and Plenipotentiary Ambassador of Kazakhstan to the United States of America Yerlan Idrissov delivered credentials to the US President George Bush on Wednesday in Washington, the Kazakh MFA’s press service reports…
RIA Novosti: Kazakh Nur Otan party hopes for up to 90% at parliamentary polls
Kazakhstan’s pro-presidential political party Nur Otan hopes to gain an overwhelming victory of up to 90% of votes at parliamentary elections scheduled for August 18, a deputy head of the party said Wednesday…

News Roundup - July 25, 2007

The Washington Post: Local Property Dispute Grows Into International Issue for Kazakhstan
The house where Maya Salakhutdinova lived is now a shell of ruined walls with broken cinder blocks and splintered wood spilling in a heap onto a narrow lane. Last month, her house and 11 others in this village, a secluded enclave about an hour from Almaty, Kazakhstan’s commercial capital, were bulldozed by court order…
Eurasia Insight: Officials Adopt Low-Key Approach On Language Policy
It has been 10 years since Kazakhstan adopted a law that enshrined Kazakh as the state language, and required all citizens to learn it. A decade later, major challenges continue to hamper efforts to encourage non-Kazakh speakers to learn the language…
Guardian Unlimited: Kazakhstan Open to make European Tour debut in 2008
The Kazakhstan Open will debut on the European Tour next year, elevating the first professional golf tournament in the oil-rich Central Asian country to main-tour status after three seasons on the junior circuit…
neweurasia: Kazakhstan Recruits “Proper” Monitors
As the parliamentary elections are approaching, the authorities are becoming more and more active in international lobbying and positive image-making. Last week I wrote about Paris-based PR firm, which gently prepares international public for inevitable landslide victory of the ruling party “Nur Otan”…
Reuters: Environmentalists Call for Caution in Mercury Cleanup in North
As a long-planned operation to clean up a major source of mercury pollution in northern Kazakhstan gets under way, environmentalists and academics are calling for caution in dealing with the highly toxic substance…
Religious Intelligence: Persecution on the Rise in Kazakhstan
In Shymkent a mother and her young child were barred from their home on the premises of the Baptist Church after the Church refused to undergo state registration…
Reuters: RLPC-Kazkommertsbank launches $400 mln loan
Kazakhstan’s largest bank, JSC Kazkommertsbank, said on Wednesday it has mandated the initial lead arrangers and bookrunners for a $400 million, 370-day syndicated trade related loan…

News Roundup - July 24, 2007

Eurasia Insight: New Architecture Reflects Rising Prosperity
As its energy-driven economy matures, Kazakhstan is paying increasing attention to aesthetic appeal. Elite Western architects are now busy giving Kazakhstan a make-over, both in the public and private sectors…
The Washington Post: Before Elections, Kazakhstan Does a Little Campaigning
If you’re an ex-commie dictator looking to burnish your image, it’s probably a good thing to make extra sure that the international community thinks your country’s parliamentary elections next month are fairly run. It surely makes sense that Nursultan Nazarbayev, ruler of oil- and gas-rich Kazakhstan since just before it broke from the Soviet Union in 1991, would want to get the “right” people on the monitoring group, which is being run by the Organization for Security and Co-operation in Europe…
CNN Money: Global Payments Europe Expands to Kazakhstan With Home Credit
Global Payments Inc. , a world leader in electronic transaction processing services, announced today that its Prague-based, wholly-owned subsidiary, Global Payments Europe, s.r.o., has entered into an agreement to provide payment card processing services to another member of Home Credit Group — Home Credit Kazakhstan…
Eurasia Daily Monitor: Transneft Squeezing Oil Majors in the Caspian Pipeline Consortium
The U.S. companies Chevron and ExxonMobil are among the targets of Russian extortion on this 1,580 kilometer pipeline, which was built mainly with U.S. capital and technology to carry oil from Kazakhstan to Russia’s Black Sea port of Novorossiysk…
Forbes: Kazakhstan Kagazy IPO Priced at 5 USD per GDR
Kazakh industrial group Kazakhstan Kagazy said its initial public offering (IPO) in London has been priced at 5 usd per global depositary receipt, valuing the company at 490 mln usd on flotation…

News Roundup - July 19, 2007

BBC: Campaigning Start In Kazakhstan
Campaigning has begun in Kazakhstan for the parliamentary elections in August. International monitors have judged previous polls to be deeply flawed, and Kazakhstan is under pressure to hold these elections in a more open manner…
EurasiaNet: President’s Daughter to Sit Out the Upcoming Election
Dariga Nazarbayeva – the powerful daughter of Kazakhstani President Nursultan Nazarbayev, and not so long ago viewed as a possible presidential successor – appears to have taken a wrong political turn. With Kazakhstan’s election campaign scheduled to kick off on July 18, Dariga will not be one of the candidates vying for a parliamentary mandate…
The Washington Post: Family Fight Leaves Kazakhstan’s Power Couple on the Outside
For years, Rakhat Aliyev and his wife, Dariga Nazarbayeva, were the power couple of Kazakhstan, building empires in media, banking and politics under the protective wing of Papa — President Nursultan Nazarbayev. However, things have changed quickly in this energy-rich nation on the Central Asian steppe, where the United States, Russia and China jockey for influence and access to oil and gas…
EurasiaNet: Man-made Environmental Hazards Threaten Lake Balkash
Late on a Friday evening, workers at the municipal stadium in the Kazakh city of Balkhash were busy rolling out broad strips of artificial turf. Real grass can’t grow due to pollution from the local metal plant, explained the venue’s administrator…
Harper’s: Kazakhstan Recruits American Supporters to “Monitor” Its Election
The Glorious Nation of Kazakhstan will be holding parliamentary elections this August and is hoping to make a positive impression with the international community about its progress towards democracy. If the past is any guide, that won’t be easy…
Radio Free Europe/Radio Liberty: Central Asia: Is There Any Escape From Lifelong Presidencies?
Virtually no one in Central Asia expects radical changes from elections scheduled for later this year in Uzbekistan and neighboring Kazakhstan. Incumbent Islam Karimov is widely expected to hold on to his presidential post in Uzbekistan, and another compliant parliament is likely to emerge from voting in August to help Nursultan Nazarbaev further consolidate his presidency-for-life…
BusinessWeek: China, Turkmenistan Ink Natural Gas Deal
China has signed a 30-year contract to buy gas from Turkmenistan, a state news agency said Wednesday, giving the resource-rich Central Asian nation a boost in its effort to realign away from its former rulers in Moscow.

Alliance Bank’s Debut on LSE

As Kazakhstan’s economy keeps on growing at a fast pace, more and more Kazakh companies turn to Western exchanges as sources of financing. Alliance Bank, Kazakhstan’s third largest bank and its largest retail lender, is the latest newcomer to join the club of British-listed companies from this former Soviet Union country. Yesterday, on July 17, its major shareholder, the Almaty-based holding company Seimar Alliance Financial, raised $704 billion in its listing on the LSE.

Alliance whose common shares have already been listed on the Kazakhstan Stock Exchange (KASE) placed 50.28 million GDR’s, each representing-one thirtieth of a share, to offer around 17.4 percent of the bank. The sale price implies a market value of around US$4.05 billion. Seimar sold the GDR’s at $14.00 each which is the bottom of the indicated range of $14.00 and $17.30. During the first day of trading the shares lost 6.7 percent and closed at $12.80.

Alliance is the third Kazakh bank that listed its GDR’s on LSE. Kazkommertsbank has listed its shares in London in November 2006 and Halyk Savings Bank followed in December 2006. Two other larger Kazakh banks are currently considering secondary offerings in London (Bank TuranAlem and Bank CenterCredit) while Unicredit, the Italian banking group, agreed to buy another Kazakh bank, ATF Bank, for $2.2 billion.

While Alliance’s GDR’s were listed at the low end of the estimated range, the share price indicates a huge premium to its peers. The issue price was a multiple of 4.8 times book value of $2.91 per GDR as of March 2007, a 78 percent premium to Kazkommertsbank which trades at just 2.7 times book value of $8.269 per GDR.

Alliance has been growing aggressively over the last several years and moved from being a tenth largest retail lender in Kazakhstan at the end of 2004 to being the leader today. To fuel this aggressive growth in the near future, the London listing was a logical step. However, the fast growth brings several risk factors that need to be considered.

First, the often discussed and highly praised growth of the banking sector in Kazakhstan is fueled mainly by retail credit and lending to construction companies and real estate developers. The product and services range of most Kazakh banks, and especially small and medium-size banks, is not wide, and the risks tend to be concentrated in certain areas. For Alliance, retail lending represents a total of 45 percent of its loan portfolio which makes it vulnerable to both systematic and unsystematic risks.

As most Kazakh banks, Alliance strongly depends on international capital markets as a source of capital, and as a result, is vulnerable to exchange rate, refinancing and interest rate risks. In addition, as the bright economic situation in Kazakhstan and the strength of the Kazakh tenge (especially compared to its neighbors) can be attributed to the high oil prices, at least as much as to President Nazerbayev’s economic policies, the banks are highly vulnerable to macroeconomic shocks like a sudden drop in the price of oil that would almost certainly take the tenge down as well.

Second, as already mentioned, Alliance’s growth was mainly thanks to the aggressive increasing of its market share in Kazakhstan’s retail lending. Today, its share represents 20 percent of the Kazakh market. However, as the volume of loans and the speed with which they are approved increase, so do the risks. Alliance uses a proprietary credit ranking system that allows it to grant or reject a retail loan in a matter of minutes. This, while allowing the processing of a large number of loans, naturally leads to a degradation of quality of the loan portfolio. As of the end of 2006, the non-performing loan of the ration was 3.6 percent. While this is an increase from the year before, it is mainly the result of Alliance’s strategy to focus on retail lending which is both more lucrative and riskier, and it is difficult to assess the effectiveness of the credit issuance system. The fact of the matter is that as the bank is fighting for market share, it cannot afford to cherry-pick worthy borrowers and the number of non-performing loans is almost certain to increase. As the retail loan portfolio makes up almost half of the entire loan portfolio of the bank, this may cause difficulties in the future. In addition, it should be noted that the growth occurred during a period of highly favorable macroeconomic conditions which may or may not last.

Kazakhstan has certainly been a success story, especially compared to its neighbors, and it attracts attention of not only oil and gas and mining companies but increasingly of portfolio managers around the world. However, it remains to be seen whether its almost double-digit growth of the past several years was thanks to the market-friendly policies of the presidential administration or merely to the high prices of oil and gas. The debut of Alliance Bank on the London stock exchange shows that investors are growing cautious of risky deals whatever the success story may be.

News Roundup - July 17, 2007

TheStreet.com: The Borat Trade: Four Kazakhstan Plays Are Very Nice
Kazakhstan’s vast reserves of oil, natural gas and uranium near the Caspian Sea are the reason for a flood of foreign investment…
Mondo Visione: Wiener Börse Launches Kazakhstan Index, KTX
With today’s launch of the Kazakh Traded Index (KTX), Wiener Börse has gone one step further East, and as of now, will calculate the index tracking the most important companies in Kazakhstan…
Bloomberg: Kazakh Alliance Bank Sells $704 Million of Stock in London
AO Alliance Bank sold shares for $704 million in London, the third Kazakh lender to sell stock abroad in less than a year…
Eurasia Daily Monitor: Pro-Presidential Party Dominates Election Campaign in Kazakhstan
The party-list segment of Kazakhstan’s parliamentary elections, set for August 18, will be an uphill battle for opposition political forces in Kazakhstan. For all their irreconcilable differences and divergent policies, the assorted opposition contenders all must face the formidable, pro-presidential Nur Otan People’s Democratic Party…
Trend News Agency: ODIHR Deploys Long-term Election Observation Mission to Kazakhstan
The OSCE’s Office for Democratic Institutions and Human Rights (ODIHR) has opened an election observation mission for the 18 August parliamentary elections in Kazakhstan…
Forbes: KazakhGold Signs Deal with Maed for re-treatment Plants in Kazakhstan
KazakhGold Group Ltd said it has signed a contract with engineering group Maed Ltd for the construction of new tailings re-treatment plants at its Bestobe and Zholymbet gold mines in northern Kazakhstan, each resulting in 2 mln tonnes per year (mtpa) of reclaimed tailings…