Kazakhstan’s reorganised sovereign wealth fund is spearheading the privatisation of the country’s major assets. Stefanie Linhardt finds out how the fund is planning to make privatisation pay for the Kazakh economy. 

Baljeet Kaur Grewal embedded

Has privatisation become an old story? Not in Kazakhstan, where the process of selling off has started but a large share of assets resides in state hands.

In most cases, the country’s recently reorganised sovereign wealth fund, Samruk Kazyna, is running the sales. Samruk Kazyna, which has shifted from being an operationally involved fund to being a strategic investor, has embarked on wide-ranging privatisation of Kazakh businesses.

Thorough preparation

Baljeet Kaur Grewal, the fund’s managing director for strategy and portfolio investments and a member of the management board, says the process will have a significant impact on the country’s economy, so it needs to be prepared thoroughly.

“We might be late to the privatisation game but we have the benefit of hindsight – we know what we don’t want to happen,” she says. “We have appointed privatisation advisors in the form of the Boston Consulting Group and together we have a strategy for each individual asset.”

For instance, with state oil and gas company KazMunaiGaz, the fund intends to create substantial value by optimising the financials, restructuring the funding structure, restructuring the operating model and delayering the company in the next few years before the oil price recovers. The fund expects this to be in 2018, says Ms Grewal.

But the list is much longer. A total of 217 companies are earmarked for privatisation between 2016 and 2020. Some 173 of these are non-core assets and are largely sold through open auctions. The sales of about 37 companies were already closed or completed by October 1, some 59 were in the process of liquidation or liquidated, and 12 were in the process of reorganisation or had been reorganised. 

Selling core assets

The high-profile privatisations, those of Kazakhstan’s 44 core assets, are not expected to start before the first half of 2017. These major deals will not come to market simultaneously, Ms Grewal notes, adding that each is at a different stage in its maturity process.

“The companies that already have some form of foreign investment and that are nimble will be the first to go to market,” she says. “If the intention was to maximise revenues, you would be seeing a fire sale of assets and that is not what we are doing.”

Seven of the core businesses are set aside for initial public offerings (IPOs), including KazMunaiGaz, state airline Air Astana and postal service KazPost. The first priority is for them to be listed through the Astana International Financial Centre (AIFC), supporting the infrastructure of the local capital markets. However some assets, such as KazMunaiGaz, already have listings of global depositary receipts on the London Stock Exchange.

“Access to liquidity is important in any IPO process,” says Ms Grewal. “Domestic liquidity would largely come through the AIFC and international liquidity could potentially come through markets from outside Kazakhstan – maybe through dual listings.” 

Creating economic impact

Only by attracting the right investors will the privatisation process further support local businesses and the Kazakh economy, which took a hit from the slump in commodity prices.

Kazakhstan’s gross domestic product (GDP) growth, once in the high single digits, slowed to 1.16% in 2015, according to the International Monetary Fund, and is expected to contract by 0.76% in 2016. The Kazakh economy depends heavily on the oil sector, which accounts for an estimated 20% of GDP, 50% of fiscal revenues and 60% of exports.

Ms Grewal notes that any privatisation has the aim to create financial returns – and both the fund’s portfolio companies are paying dividends to the fund and the fund to the shareholder. But she adds: “Our narrative is really to maximise economic impact and not immediate financial returns.

“Financial returns are good but when a national company goes public, you need to have a wider agenda and that needs to be one that maximises economic impact.” 


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