Sovereign wealth fund Samruk-Kazyna became the main vehicle for the Kazakh government to rescue a distressed banking sector and ailing economy. Its CEO, Kairat Kelimbetov, explains the fund's next steps. Writer Philip Alexander
When the Kazakh government combined its industrial holding company Samruk with Kazyna, its investment fund for economic diversification, in October 2008, it created a sovereign wealth fund modelled on Singapore's Temasek. Within four months, however, this had been transformed into the bailout vehicle for the stricken Kazakh banking sector, taking stakes of just under 25% in Halyk Bank and Kazkommertsbank (KKB), and taking control at BTA Bank and Alliance Bank.
The resulting fund has charter capital of $25bn, and an asset base equivalent to 70% of Kazakhstan's gross domestic product (GDP). The extra responsibilities stretched Samruk-Kazyna's management capabilities, especially when BTA's creditors called for a repayment acceleration on the bank's Eurobonds in April 2009.
"At that time, no one could quite believe that the banks could be saved, but the government asked us to do it. We asked a creditors' steering committee to talk to all investors, who understood that the alternative would be bankruptcy, and the return would be not more than three cents on the dollar, terrible for them and catastrophic for us," recalls Samruk-Kazyna's CEO Kairat Kelimbetov.
A year later, Alliance and BTA had successfully restructured their debts, leaving Samruk-Kazyna in control of 67% of Alliance, and 81.5% of BTA. Mr Kelimbetov is adamant that the fund will return to its original purpose, with controlling stakes in the rescued banks sold down "as soon as possible", ideally within three years.
"We strongly believe that strategic private leadership of these banks will be more efficient than our management. But the only issue will be the price, and we are open to discussion on these terms," he says.
Seeking buyers
A pre-crisis merger between BTA and the specialist retail bank Temir was reversed as part of the restructuring. Mr Kelimbetov believes that Temir is small enough to be digestible, not just for incoming foreign investors, but also for existing players in Kazakhstan. Investors from Russia and India have apparently made approaches to buy Alliance already, leaving BTA as the most complex proposition.
So far, only Russia's dominant state-owned bank Sberbank has shown interest in BTA. While Mr Kelimbetov would be ready to consider other bidders, he acknowledges that the nature of BTA's troubled assets needs to be taken into account.
"Recoveries for BTA depend on assets that are about 90% Moscow real estate projects. We are still in court with the previous shareholders in order to win title over these properties, and after this they will also need to be refinanced to get upside in the future. A Russian bank would be in a better position to do this," says Mr Kelimbetov.
Of the two less damaged banks, Mr Kelimbetov says Halyk Bank has already started to repay the $500m liquidity line extended by Samruk-Kazyna. He expects the bank to repay the government's equity stake during 2011, with Samruk-Kazyna exiting KKB perhaps two years later.
For all these banks, the recovery of domestic loan portfolios is vital. The Kazakh government estimates GDP growth of 5% in 2010, helping to drive down non-performing loan levels. Mr Kelimbetov anticipates even higher economic growth once output from the Kashagan oil and gas field comes on-stream from 2012 - which should fit well with his planned sale timetable.
Beyond the banks
As Samruk-Kazyna winds down its emergency participation in the financial sector, Mr Kelimbetov is able to focus his attention back on the fund's vast industrial holdings, including gas company KazMunaiGaz, energy generation and distribution assets, uranium mining, and Kazakhstan's rail and postal systems. He says Samruk-Kazyna companies account for about half the government's ambitious $45bn investment programme.
As the government does not want to draw down money from the country's stabilisation fund (comprised of excess oil revenues), attracting foreign direct and portfolio investment is essential. The record-breaking $70bn initial public offering (IPO) of Brazilian state-owned hydrocarbons company Petrobras in September 2010 provided a wake-up call for Kazakhstan, and Mr Kelimbetov hopes for a decision by the end of 2010 on whether the same can be done with KazMunaiGaz.
"It is an appropriate time to do such an IPO. It is clear this kind of quasi-government company from the BRIC [Brazil, Russia, India and China] economies or economies related to them, such as Kazakhstan, is very much of interest to investors," he says.
Mr Kelimbetov hopes that a successful IPO might open the door to other Samruk-Kazyna companies to float their shares. But foreign investors raised questions about the government's intentions when the fund increased its holding in privately owned mining company Kazakhmys, from 15% to 26% in October 2010.
"Private investors should not have any allergic reaction to this, because it is not demonstrating any nationalisation tendencies. We guaranteed a $2.7bn credit line to Kazakhmys from China Development Bank at the height of the crisis when conditions were very difficult. To get some upside from the industrial programmes of Kazakhmys we increased our share a bit, but there are no plans to increase it any further," says Mr Kelimbetov.
