DIVERSIFYING THE BASE

Kazakhstan 2017 | ECONOMY | INTERVIEW

TBY talks to Dinmukhamet Idrissov, Chairman of Ordabasy Group, on expansion amidst a more protectionist sentiment, mining, privatization, and how the group will develop in 2017.

 Dinmukhamet Idrissov
BIOGRAPHY
In 1982 Dinmukhamet Idrissov graduated in 1989 with a degree in civil engineering. His professional career began at the Almaty branch of the Ust-Kamenogorsk Building-Road Institute, and in 1997 he became the principal founder and headed LLP Alma-Oil, and is the founder of LLP Ordabasy. Since 2004 he has also been the advisor to the director of LLP Kazakh Utility Systems. From December 2005 to May 2006 he worked as Managing Director of JSC NC Kazakhstan Temir Zholy. From 2010 to the present day he leads the Board of JSC Maten Petroleum and is Chairman of the Supervisory Board of Ordabasy Group LLP.

How are your expansion plans progressing, and what have been the main highlights in the past year?

The world economy stumbled in 2016 amid weak demand, falling commodity prices, and increasing financial market volatility in major economies. Donald Trump's election influenced the whole economy and perspective of the world for investors as well. Investors are switching their strategy toward protectionism, choosing to depress aggressive investment and to induce herding behavior among firms. The same situation is true in Kazakhstan; investors and companies are moving from being global oriented to more Kazakhstani focused, especially taking into account the devaluation last year. For instance, Europharma changed its strategy correspondingly in terms of its previous expansion plans to China. Nevertheless, we still plan on boosting our growth abroad, however with a little retardation. Europharma's revenue increased roughly by 30% last year, and the whole investment activity remained strong. We recently divested our assets in Alma TV, which was a prosperous deal for us. We see tremendous opportunity for Alma TV to grow and expand, especially taking into account its experienced management and decent business strategy. Ordabasy Group just received an admirable offer and we exited the business.

What is the potential for mining to be a bigger driver of Kazakhstan's economy?

In the last three years Ordabasy Group has invested USD300 million in gold mining, and as a result for today we have a gold processing plant producing and selling gold bars. We also perceive opportunities for the development of cooper deposits; for instance, we invested funds to expand exploration works to increase the resource base. One of the biggest advantages of this sector in Kazakhstan is that the revenue is linked to the US dollar, thus the conceivable currency risk is minimized. Since mining products are considered to be commodity, the demand is constant and linked to many markets; thus, all we have to do is to control costs and to ensure efficient management.

How does Ordabasy Group intend to participate in the government's privatization program?

The privatization program is an ambitious move, and one that speaks highly of the intent of the country's leadership to improve and integrate into the global economy and we would like to take an active role in it. A considerable share of our investment portfolio constitutes Kazakhstan Utility System, which generated, in 2016, an increase in revenue and EBITDA to the amount of 35-40% in comparison with the previous year. Management of KUS is ready to expand, thus the company currently is in the process of closing the deal on the acquisition of Ust-Kamenogorsk CHP from American company AES. Moreover, KUS was recently engaged in three tenders in a framework of government's privatization program, one of which resulted in a positive outcome. Overall, Ordabasy's team carefully analyzes companies within the privatization program, although the competition among investors is strong especially among local investors. For example, during the bidding process one local investor increased its initial price by 25%. Foreign investors are less active in the privatization program due to currency exchange rate risk.

What are your expectations for 2017?

The last three years have been hard for the economy; however, from my point of view, it has reached the bottom and now we expect growth and stabilization. The economic situation is stabilizing, the exchange rate is strengthening, and interest rates are falling. Obviously we are affected by the Russian economy and political situation, so should Russian-US relations improve, this will have a positive effect on Kazakhstan as well. As for Ordabasy Group, we are focusing on the energy, mining, and agriculture sectors. For agriculture we have an extensive project in Zharkent City, the largest integrated fruit production facility in Central Asia, which will produce apples, peaches, cherries, and plums. The first harvest is expected to be in 2017; the production will be exported later.