MARKETS' PLACE

Kazakhstan 2015 | FINANCE | FOCUS: PEOPLE’S IPO

Entry into the Eurasian Economic Union heralds the establishment of a new market that will allow Kazakhstani goods and services to compete in a much larger economic area.

When President Nursultan A. Nazarbayev commissioned the launch of the People's IPO Program in 2011, he emphasized the importance of involving as many ordinary Kazakh citizens in the economic development of the country as possible. President Nazarbayev pointed out that the population should be able to participate in the country's economic growth through stock ownership, and instructed the government to ensure that IPO program procedures were fully transparent to the general public. The program is expected to add liquidity to the country's stock market, boost its stock exchange, and educate the general public about investing in financial instruments. And as of November 2014, Samruk-Kazyna, the country's official sovereign wealth fund, reported that 30,000 people in 25 cities around the country have attended specific information sessions about the IPO. Moreover, in the long term, the People's IPO will theoretically allow Kazakhstan to have one of the largest and most prosperous property-owning middle classes in Central Asia.

In line with President Nazarbayev's vision to reduce the state's involvement in the economy, The government will continue with privatization programs for the period from 2014-2016. The share of GDP commanded by the quasi-public sector in Kazakhstan is from 40% to 60% depending on estimates. Privatization is needed in order to improve the quality of economic growth in the country, and thus allow Kazakhstan to become a more competitive country—and enter the top thirty developed countries.

The current privatization reforms could well be the largest since the end of the Soviet Union. Of the 599 companies under Samruk Kazyna, more than 200 have been considered for privatization. Samruk Kazyna holds about $100 billion worth of assets, ranging from the national postal service, to the national railways, to a number of investment funds, and constitutes about half of the country's GDP.

The government will also shed around 30 smaller companies through sales to strategic investors in an auction process. State assets in both the atomic energy, and oil and gas sectors will be sold, along with stakes in electricity distribution networks and a variety of other industries. KazTransOil was the first such company to float its shares in November 2012, and the inaugural IPO raised approximately $180 million through a highly successful domestic placement that was oversubscribed by two times. On December 25, 2012, the company floated over 38 million common shares. As a result, 34 thousand Kazakh citizens and 10 pension funds became shareholders in the company through the offering.

According to Samruk Kazyna's official website, in 2015 the fund intends to offer 10% of the shares of Samruk-Energy. This nationalized energy company is engaged in the production, transmission, distribution, and sale of electricity to households and industrial enterprises in the Republic of Kazakhstan, and represents a move towards the privatization of public utilities.

KazTemirTrans, the largest operator of cargo rolling stock in Kazakhstan is also set to float shares, and 49% of shares in Transtelekom, one of the largest communications providers in the country, will also be up for grabs in the near future.

In 2016, shares of KazAtomProm, the state-owned nuclear holding that produces uranium and also operates in the field of nuclear energy and nuclear fuel cycle services, are expected to be on the market. The national railway company of Kazakhstan, TemirZholy, will follow suit. This crucial component of the national economy is tasked with developing, operating, and maintaining railway transportation in Kazakhstan. These examples are just a few of the many companies that will see management and ownership move towards the private sector, and allow the government to concentrate on the core tasks of governance while the private sector assumes a greater role in the economy.