TBY talks to Kadyrzhan Damitov, President and CEO of the Kazakhstan Stock Exchange, on its evolution, international cooperation, and Kazakhstan’s potential to be a CIS financial hub.
TBY You became president of the Kazakhstan Stock Exchange (KASE) in April 2009. What has changed during your time at the helm?
KADYRZHAN DAMITOV One of the most significant developments was the merging of the two trading floors following new listing requirements. I should also mention changes in the amount of illiquid shares. We have also taken important steps in expanding the number of financial instruments available to KASE members, and simplified membership procedures. In addition, we worked in cooperation with the regulators over the crisis period to develop the “buffer category”. Some of our companies issued bonds, and it became problematic for them to fulfill their debt obligations. If these companies now meet certain criteria, we can offer to transfer them to the buffer category, rather than de-listing them, in order to rehabilitate them. We are also proud to have improved our corporate governance and reduced our risks.
How have these steps improved the performance of the KASE?
Some of the measures were reactions to the global financial crisis. These worked toward improving the general regulation of the stock market. We reduced the number of non-settlements and the non-fulfillment of obligations. Some of the companies that were transferred to the “buffer category” rank very highly today. For them it was a very good rehabilitation procedure.
KASE was founded in 1993 as the Kazakh Interbank Currency Exchange. How has the institution become more sophisticated since then?
During the initial stages, the KASE was known as the Interbank Currency Exchange. Now we are a universal stock exchange. Different kinds of instruments are traded today, not only currency, but bonds, shares, derivatives, and other instruments. We have also transformed into a more open joint-stock company. We currently see the most activity in the currency market and state treasuries.
Which relatively less-traded instruments have the best future prospects?
We naturally hope that the stock market will have a strong future. All our efforts are concentrated toward accelerating and increasing the amount of liquidity in the stock market. In 2010, in cooperation with the Vienna Stock Exchange, we conducted a project aimed at improving the liquidity on the KASE equity market and building capacity. The project was funded by the EBRD, and we now have very good recommendations from our colleagues in Vienna. We included these recommendations in our three-year plan. We are engaged in consultations with market representatives and government officials. We are also seeing an increase in IPOs and SPOs. We are in the process of intensive discussions about the technicalities of these upcoming processes. These are complicated processes and we have to meet different requirements. We also hope and expect to see more retail investors in our market, and believe that this will increase liquidity.
What is the level of cooperation between the KASE and its international counterparts?
The KASE is a member of a number of associations and exchanges, and we meet our colleagues from other exchanges on various occasions. We always have the possibility to contact different exchanges, consulting companies, and international financial organizations directly. We established an international department and forged relationships with foreign financial actors. We have affiliate status at the World Federation of Exchanges, and within three years we would like to become a full member of this organization.
How would you evaluate the KASE’s role in helping make Kazakhstan a regional financial hub in the CIS?
We believe that Almaty has enough potential to be one of the regional financial centers in the CIS. All of our operations are geared toward developing Almaty in this role. We have a very developed banking system, and it is a good basis to develop the KASE and other segments of the financial sector. Our regulations are based on international standards, and are more or less the same as in any developed nation. In this respect, Almaty is already prepared.
What trends are you expecting in credit availability as the economy recovers from the crisis?
The worst times are behind us. Step by step the situation is improving. From a statistical point of view, we don’t see rapid growth in credit portfolios because of the lingering effects of the crisis. Over the last 2-3 years, a proportion of credits have been repaid, and new credits are lagging behind. The processes are starting to improve and new credits will soon catch up in 2011.
Where do you see the KASE in two to three years time?
If we reach our target of becoming a full member of the World Federation of Exchanges, it will mean that the KASE will become a stock exchange based on international standards with transparent rules, with more reliable systems and schemes of payments. It will also provide more clarity to foreign investors. In this way, our market will become more developed in terms of available instruments, liquidity, reliability, and transparency. The Kazakhstani financial system is dominated by the banking sector. Developed financial systems are based on a developed stock market. It is our primary goal to develop our stock exchange as part of a modern financial system.
In which non-prime sectors of the economy do you see potential for foreign investors?
Agriculture and the food industry show potential, especially in terms of what is happening around the world. We have an enormous amount of territory with great potential to develop agriculture and a food-processing industry. There are also opportunities in the chemical industry, connected to the oil and gas sector. Investors will also be attracted by the opportunities in metallurgy and machinery assemblage. We also have to mention the Customs Union. For enterprises in territories close to the Russian border this means a great potential for trade. The development of cooperation within the Customs Union will help intensify investment relations among Kazakhstan, the Russian Federation, and Belarus. Aside from this, considering significant volumes of cross-border trade between Russia and China, Kazakhstan may attract more investments from these countries.
© The Business Year