TBY talks to Michael C. Carter, Jr., CEO of Visor Capital, on linking international investors to Kazakhstani markets, and the possibilities for expansion.
TBY What role is Visor Capital playing in Kazakhstan?
MICHAEL C. CARTER, Jr. Visor Capital started about five years ago, and it is owned by a local company, Visor Holding. Our shareholders’ vision was to have an international-style investment bank here in Kazakhstan. At that time, the owners saw domestic banks making a lot of money in the commercial lending market. These banks had very little incentive to wean their clients out of a lending relationship and into a capital market solution. Global firms were conducting the large transactions, and so our shareholders saw a place for a local operator that had the right international skill sets and capabilities. We’re not the only broker or advisory firm, but we’re the only one that has really brought in key international legal, research, and capital markets experts. We also have a subsidiary in the UK that is FSA authorized and a member of the London Stock Exchange. This naturally helps our business here and enhances our image. However, the main reason is that an awful lot of Kazakhstani assets happen to be listed outside of the country. A couple of examples of such companies are Kazakhmys and ENRC, which are both FTSE 100 firms. To summarize, in only five years Visor Capital has become the only Kazakhstani investment bank with such an international footprint and recognition. We have the capability to attract foreign investors’ funding (bonds, shares) for companies with assets in Kazakhstan, and we help Kazakhstani companies to get visibility among international investors.
Does Visor focus on local or international clients, and what sets the company apart from its regional competitors?
In brokerage, we focus on international investors, in part because the local pension funds have direct market access to the local market, without the need of a broker. As of today, Visor Capital trades with most of the international emerging market funds investing in Central Asia. We are very different from other firms in the CIS and emerging markets, where you often see asset management companies control the broker/investment bank. Our parent company owns a separate subsidiary, Compass Asset Management, which manages third-party money and with which we only have an arm’s length relationship. One example of Compass Asset Management’s activities was the creation of Tau Capital, originally set up in joint venture with the Rothschild family. These types of funds demand transparency and arm’s length dealing. In many emerging markets, this kind of arm’s length relationship doesn’t happen, even within a brokerage/investment bank. So one thing we’ve done is to bring in international market practices and train a lot of people here locally. We have become a company that international parties trust to do deals with in this country. For example, we advised Kookmin Bank of Korea in their acquisition of Bank Center Credit. With Bank Center Credit, the initial sellers request was one transaction to take out all the shareholders, but we were able to negotiate a deal whereby Kookmin could reach a majority over a multi-stage process. The first tranche was at 3.2 times book value, but the cumulative price paid to date is closer to 1.6 times book value, which is a reasonable price for a strategic investor buying into a bank.
What other sectors besides finance do you believe appeal to foreign investors in Kazakhstan, and what is needed to increase interest?
The big opportunities are obviously in the resource and resource-related sectors. What Kazakhstan still needs in order to make it a place worthwhile for investors in non-resource sectors on a bigger scale is to have an integrated Central Asian market, and this appears to be a long ways off.
What about the prospects for the Eurasian market considering the recently enacted Customs Union?
That is definitely helping to start the process, but some see Russia as the larger beneficiary because of its larger market and industrial base. The real opportunity for Kazakhstan should be for a more unified market throughout Central Asia and its Caspian neighbors, but this integration that would seem to be natural does have some political issues to overcome. Young nations do not always have the confidence to be cooperative neighbors.
How do you see regional dynamics in terms of your company’s development strategy?
In our business, you want to go to a place where it is possible to do deals and trade securities. Right now we’re looking at expanding into Mongolia. It shares a lot of characteristics with Kazakhstan, mainly its dependency on resources, with a large, sparsely populated nation with an infrastructure deficit, and it also has a common Soviet-controlled past. It has a huge underdeveloped resource potential, with China as the main market. Even so, it’s a smaller country than Kazakhstan in terms of opportunities—Kazakhstan has 20 times the GDP today and will remain our core focus. We also want to work with Russian investors, clients, and companies, as they have a natural interest in this region and it is within their comfort zone.
What is your competitive advantage?
We have a solid team and unique business knowledge. It comes from experience and also a physical presence here, enabling us to engage in lobbying activities with regulators and government as we try to shape the agenda for the investors’ benefit, and the country’s benefit. Even just little things, like helping potential investors meet the people they need to meet when in Kazakhstan, and have access to the necessary and pertinent facts. Those things are difficult to do unless you are here in the country. International investors can feel safe to benefit from our local knowledge while working in an environment they are used to (FSA-regulated subsidiary, respect of Chinese walls and more generally of international best practices). Kazakhstani companies can easily benefit from our international client base. Beyond this, we can help them to improve their processes to satisfy international requirements with the investors they will be dealing with.
What is your outlook for the Kazakhstani economy in 2011?
GDP growth will stay steady, probably at a slower rate than 2010, although it depends on commodity prices. Commodity prices at current levels for a sustained period will lead to a large increase in US dollar inflows and government revenues. In 2010 we saw high GDP growth, and the government will want to slow that a little to avoid inflationary pressure. Inflation is nevertheless picking up, and the CPI is expected to be between 8.5 and 9% in 2011. It’s under control, but it’s still something to be wary of. For companies that have costs denominated in tenge, such as in the mining industry, inflation could be very costly if combined with an appreciating currency. They were the biggest beneficiaries of the 2009 devaluation of the tenge. We should also keep in mind that, as in many emerging countries, food accounts for about 45% of the CPI basket. That is why the government is very sensitive on inflation, because it would directly affect the population much more than in countries such as Italy or France, where food only constitutes about 15% of the CPI basket.
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