Sale of the century
3 October 2011 | By Dale McEwan
21 December 2012
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5 September 2013
Kazakhstan is in the throes of speedy development along Thatcherite lines, and lawyers are trying to make the most of it, says Dale McEwan
Kazahkstan’s lawyers are gearing up for a unique opportunity. In an environment where governments around the world are looking to privatise companies, Kazahkstan’s proposed so-called ’people’s IPO’ in 2012 is offering lawyers one of the most significant opportunities for work.
The IPO will give members of the public the chance to become shareholders in a 5-15 per cent stake of some of the country’s most successful state-owned companies.
The range of companies will extend beyond the country’s traditional commodities producers and is expected to include power companies KEGOC and Samruk-Energo, oil transportation company KazTransOil, railway company Kazakhstan Temir Zholy, national airline Air Astana and telecommunications company KazakhTelecom.
“While it’s not completely clear what the reasons are for undertaking the IPO, they may include educating the population about the value of investing, encouraging them to participate in the market and further developing the stock market,” says SNR Denton partner Joel Benjamin, who adds that his firm hopes to participate by acting as counsel on one or more of the transactions.
“It seems that the minister of economy here is a fan of Margaret Thatcher, if you remember the ’Tell Sid’ campaign,” says Michael Wilson, director at Commonwealth of Independent States-focused firm Michael Wilson & Partners. “The Conservative government privatised British Gas in the 1980s. The government of Kazakhstan is talking a lot, but we haven’t yet seen that much work locally on this political initiative, designed to improve governance at the state companies and kick-start the almost nonexistent Kazakhstan Stock Exchange, which currently basically handles matched trades in equities.”
“The aim of the IPO is humane and good,” contends Aequitas deputy managing partner Tatyana Suleyeva, “but there are a lot of questions. Kazakhstan has well-developed financial legislation, which includes securities market legislation. However, the securities market itself isn’t well-developed, particularly due to the fact that Kazakh companies aren’t transparent.
“Also, our people are not used to buying shares. There’s strong doubt that these shares will be purchased. That’s why there’s a thought that the shares will be bought by foreign investors.”
Wilson suggests that an international IPO could take place in Toronto or Hong Kong.
Meanwhile, foreign investment in Kazakhstan continues to grow. The government’s National Export and Investment Agency has compiled a list of 159 potential investor companies that it will target in the years to 2020. The list includes companies in sectors such as oil and metal products manufacturing, metallurgy, chemicals, transportation, pharmaceuticals and alternative power generation.
“The government here has been careful to try to take a balanced approach, which is smart,” says Benjamin. “We see more investment coming from Asia, but that doesn’t mean we don’t see it from elsewhere, like the Middle East, US and Western Europe. This approach helps avoid the chance of being held hostage by the interests of any one country and also encourages competition.”
Chinese investors are particularly interested in commodities. Chinese enterprises control roughly 40 per cent of oil and gas exploration and production in Kazakhstan due to recent acquisitions.
The mining sector is also becoming increasingly active.
“This had been dead for many years,” says Benjamin. “About 10 years ago it was very quiet. Mining’s really picked up since the crisis because commodities prices have gone through the roof.”
Yerzhan Kumarov, Macleod Dixon’s Almaty managing partner, says a lot of small and medium-sized M&A transactions have been cropping up in the mining sector.
“This is our bread and butter,” he adds.
The firm represents the likes of Barrick Gold Corporation, BHP Billiton and UrAsia Energy, with a focus on gold, uranium, copper, titanium and zirconium.
The Kazakhstan government also has plans to develop small aviation, with Benelux countries evincing interest in investing in this sector. Should such projects get of the ground in the near future, Suleyeva says Aequitas may be involved, since the firm has a strong relationship with Belgian law firm Lydian.
Despite predictions of economic growth and foreign investment, the legal profession continues to operate unregulated.
“This isn’t a good situation because very often legal advice is being delivered by those who may not have a qualification,” Suleyeva explains. “But on the other side, having the exams and the bar [membership] may be another source of corruption.”
She thinks establishing a form of regulation could lead to manipulation of the system. “I believe lawyers will be regulated,” she says, “but I don’t know when.”
There are signs that the rate of corruption in Kazakhstan is falling. In 2010 the country’s corruption perception index stood at 105 compared with 120 the previous year.
This optimism is shared by Benjamin. “With all the uncertainty in the world Kazakhstan is a place that, despite some of the challenges of operating here, is still of interest - and of relatively high growth and stability,” he concludes.