Kazakhstan 2018 | FINANCE | VIP INTERVIEW

TBY talks to Timur Turlov, CEO of Freedom Finance, on launching the firm, investment opportunities overseas, and attracting foreign investors to Kazakhstan.

What was behind your decision to launch Freedom Finance in Kazakhstan?

We saw an opportunity to match our expertise with the growing interest in Kazakhstan in domestic and foreign financial markets and the desire of many of our clients to manage their wealth in part through market investments. Since we began doing business in Kazakhstan five years ago we have been the foremost player in this business sector. Most other players have in fact reduced their participation in financial investments in the brokerage industry. This positioned us and prepared us to take advantage of opportunities in Kazakhstan.
Also we saw the economic risks of the current situation and falling prices, as well as the sanctions in Russia. The primary reason why the brokerage industry collapsed in early 2010 in Kazakhstan was due to the reforming of the institutional investors here. Most brokers in the sector were focused on servicing institutional investors, private customers, pension funds, and banks, which were involved in the reselling of all their assets. Kazakhstan has not yet developed retail brokerage, and when most of the players realized that institutional business was declining, the Russian brokers in particular left Kazakhstan, along with most of the international players. The local players cut their expenses as much as possible to minimize losses. They effectively lost the ability to earn anything on the market. At that time, the total turnover of the stock exchange was small; it was just a few million dollars per month. Freedom Finance is not just a successful company in Kazakhstan or Russia, we think on a nationwide scale of the Central Asia region, where Kazakhstan (and Russia as well) is a staging area for active expansion into key economies of the region, succeeding among other things owing to mineral resources. We see how many well-to-do people of such countries as Kyrgyzstan, Ukraine, Uzbekistan, Azerbaijan, and other regions are increasingly thinking about how to save and increase their savings, but are limited in the choice of investment instruments. The growth of income, as well as the increase in financial awareness, along with the globalization of markets and the media industry, creates the demand for such instruments, and Freedom Finance is ready to provide freedom of choice of investment instruments in all promising markets of Central Asia. We see here a huge potential for further expansion and development of our business. It will be provided with both entering into new regions and growing involvement of the well-to-do segments of the population in investment activity.

How have you been able to attract your clients to investment opportunities in global markets?

One of the most efficient and profitable parts of our business is providing access to international markets, such as the US markets and stock exchange. Interest in international investments has been high, as people are interested in diversifying their investments and allocating their risks between the US securities markets and local opportunities. In fact, 2017 was the first year that we started to see renewed interest in the Kazakhstan domestic market. Because of the devaluation risks, most people prefer to keep money in dollars, though the rates are extremely low. People seeking a higher yield in dollars can have access to the US stock market, which has a great growth outlook. We have organized the participation of our customers to give them access to some of the best offerings over the past five years, including Twitter, Facebook, and Hilton. All these offerings are high-growth industries and we have found eager buyers in Kazakhstan. Our research and trading efforts have been rewarded with strong interest and support among our rapidly growing client base in Kazakhstan.

What are your plans with regards to listing Freedom Finance on an NYSE exchange or other market?

Pursuing a listing on the NYSE or NASDAQ is a natural step for us to take at the appropriate time in the near future. Currently, we are completing the consolidation of our international group of operating companies under the umbrella of Freedom Holding, Inc., which is traded in the US on the OTC Pink Market. We believe it is a great time to approach a listing in the US market given our track record and our current prospects. We expect to meet all of the listing requirements. At the same time we have a large portfolio of domestic assets that we believe are undervalued because, during the last economic downturn, there was significant capital outflow from the country and the lingering distrust of local markets among investors. Among our securities holdings we have a number of companies in market niches that are growing fast. We have participated actively in IPOs and organized three equity offerings after the privatization program was paused. We are pleased that Freedom Finance in Kazakhstan is becoming a leader in underwriting the securities of local firms. When the government starts privatizing large firms, we anticipate it will do it through the local stock market, and we believe we are a leading candidate to play a prominent role in such public placements. We are proud of the fact that we have 50,000 customers, none of whom had participated in the stock market previous to becoming clients of Freedom finance. There are many boutique firms that can sell securities to large private equity funds, but we are one of only a few firms that can sell individual company stocks to our customers. Not only do we have the largest customer base, but we also have the most responsive one; when we offer stock, people buy because of our reputation. A broad customer base is also important for the companies we underwrite, as it promotes integrity in the distribution process and aftermarket trading market liquidity while contributing to reduce price volatility.

What sectors will foreign investors target in Kazakhstan?

We believe we can sell investment ideas to US investors. We hold a strong position from a strategic point of view in Kazakhstan in terms of our fast-growing local investment bank that we plan to have participate in every privatization program and upcoming offerings. We are becoming the largest player in bonds and equities and are already the largest underwriter for equities. When buying stock, people are exposing themselves to the Kazakhstan stock exchange, which is one of the actively growing markets in the world. In previous years it was in the top five markets because our stock exchange grew 53% YoY. Privatization will come, and when it does the index of the stock exchange will also grow. In 2017 it has already grown more than 50%, and we may see it grow to over 60% again this year.

What is special about Freedom Finance?

Although Freedom Finance focuses on the classic brokerage, which is based on “live” relationship between customers and investment advisers, we are actively experimenting in the field of fintech, as we see an enormous potential for attracting into investment activity of ordinary people, with fewer possibilities, but fundamentally different scale - due to the number of such people in all regions. We have our own Tradernet platform, we have our own package of mobile applications. Presently we have tested the technology and business model of our internet marketplace for Freedom24 shares in Russia, where any person in a few clicks may become the owner of hundreds of companies in different markets - for example, from Apple to Amazon in the US markets. As a result, the project is ready for scaling and further expansion.

What is your roadmap for 2018 and what steps are you taking to make sure it's a successful one?

We anticipate completing a private placement of our own common stock in 2017 to key local and international business partners, as well as accredited investors outside of the US. This will provide us a capital infusion needed to fund our growth and expansion plans in our domestic and international brokerages offices, investment banking and consumer banking activities, as well as permit us to increase our proprietary trading activities and investigate acquisitions that complement our core business activities. We then plan to turn our attention to increasing our presence in the US through an exchange or market listing and to establish a number of strategic business affiliations with financial market professional in the US for purposes of direct investment into Freedom Holding as well as participation in our future underwriting of companies outside the US. It is an exciting time for Freedom Holding and we expect to inform our investors of many new developments in the coming months.