Change is the name of the game for Kazakhstan’s capital markets over 2012, with the long-awaited People’s IPO program set to roll out in October. The Kazakhstan Stock Exchange (KASE) was established in 1993, soon after the introduction of the new national currency, the tenge (KZT), and was transformed into a joint-stock company in May 2012. Although the market reached a feverish high back in 2008, trading conditions have been more mooted in recent years. The regulator and the government are now looking at ways to increase trading volumes and liquidity on the market, while keeping a sharp eye out for any indication of systemic risk.
Volumes on the KASE saw their high-water mark back in 2008, with some $263.2 billion being traded over the exchange. Since then, volumes have struggled to return to their previous highs. While 2009 saw volumes decline to $155.7 billion (-40.84%), they bounced back 32.63% to $206.5 billion in 2010, before declining slightly by 2.66% to $201 billion over 2011. The first five months of 2012 saw some $69.59 billion in trading volume, indicating a potential repeat of the past two-year average, though these figures may receive a boost toward the end of the year should the People’s IPO program kick into gear. In terms of market structure over the first five months of 2012, just over half (50.3%) of all volumes were related to currency trading and another 42.3% were devoted to repo trades on government securities, leaving the remainder split between new government securities ($3.31 billion), equities ($878 million), corporate bonds ($1.2 billion), and repo trading on corporate securities ($155.1 million). The total market cap for the corporate bond sector came in at $39.8 billion as of June 1, while the equities side came in at a slightly lower figure of $37.8 billion. The number of corporate bonds listed declined slightly from 68 in 2011 to 67 as of June 1, although this is down sharply on the 101 listed back in 2008. On the equities side, the number of publicly listed companies was also 67, down five listings on the 2011 total of 72.
The KASE Index had a good start to the year, with the index rising some 10.11% over 1Q2012 to reach 1,260.09, and reaching its year-to-date (YTD) high of 1276.62 a few days later. Over 2Q2012, the market has come off its earlier highs, falling back 14.67% in YTD terms to 977.25 as international sentiment soured for emerging market equities. The three biggest sectors in terms of market cap are the materials segment (40.8%), energy (32.2%), and financials (20.7%). The most liquid shares on the market over 1H2012 were Kazakhtelecom (both privileged and normal), seeing volumes of $97.6 million; KazMunaiGas (both privileged and normal) at $22 million; and Halyk Bank ($3.92 million). Kazakhtelecom shares received a shot in the arm earlier in 2012 following the conclusion of a deal to sell its 49% share in Kcell to TeliaSonera for $1.5 billion. Kcell is expected to launch an IPO in 2013. In terms of overseas exposure, 11 listed companies have global depository receipts (GDRs) listed on foreign markets, with the majority being on the London exchange. Although seen in the past as a way to tap into foreign capital more directly, the listings have so far not brought a higher level of foreign liquidity and activity to the KASE.
The big event slated to start in 2012 is the People’s IPO scheme, which is a program that looks to place 5%-15% of state shares in leading enterprises into the hands of Kazakhstani citizens and locally registered pension funds. The program has been delayed over the past year, much a result of the volatile trading conditions seen on the global equity markets. The first People’s IPO is widely expected to be that of KazTransOil, with the government announcing in March 2012 that it was targeting October 2012 for its launch. The other company slated for the IPO program in early 2013 is KEGOC, the national power grid company.
The state expects to raise some $500 million from the initial listings, and is preparing Samruk-Energo, Kazmortransflot, Air Astana, Kazkhstan Temir Zholy, KazMunaiGas, and Kazatomprom to launch their own IPOs on the KASE under the People’s IPO program. While Kazpost is seen as being the initial distributor of shares at the individual investor level, trading in them can only be done through licensed brokers, giving the finance industry a much needed boost to their bottom lines, and potentially improving liquidity on the KASE overall. Share pricing for the IPOs will also be key, with an independent appraisal company setting the initial figure, dependent on the approval of Samruk-Kazyna and the government.
UPPING THE REGULATIONS
After the National Bank of Kazakhstan took over the job as central regulator for the KASE, it has focused on getting the sector into shape, and has sought to improve the capital base of market participants. From October 1, 2012, the minimum capitalization for brokerage firms on the market will increase to some KZT650 million ($4.3 million), three times more than current regulatory requirements. The new requirements are set to affect the 76 brokerage and dealer companies present on the KASE, though it will have an effect more on the pure brokerage players on the market. Of the 76 brokers registered by the KASE as of June 2012, 24 are affiliated with commercial banks, while another six represent the interests of local pensions funds.
Over 2011 the number of brokerage houses on the market fell by five, with two having their licenses revoked by the NBK, while the remaining three voluntarily turned their licenses in. The list of brokerage houses fell further by another one in 1Q2012. Although such a churn is to be expected in any emerging capital market, the slow rate is indicative of a considered approach by the regulator to ensure maximum participation while at the same time weeding out the weaker players that may increase systemic risk.
© The Business Year