Independent financial expert Damir SEISEBAYEV:
“KAZAKHSTAN HAS ALL CHANCES TO FLOAT SOVEREIGN BONDS IN INTERNATIONAL MARKETS AT A GOOD PRICE”

Independent financial expert Damir SEISEBAYEV shares his opinion with Interfax-Kazakhstan about KazakhstanТs plans to return to international debt markets, to enter the World Trade Organization, to implement a УpeopleТsФ IPO and to create a centralized payment processing center.

- Kazakh Finance Minister Bolat Zhamishev said at the EBRD annual meeting in May that Kazakhstan would come back to the international debt markets with $1 billion in bonds, thus setting a benchmark for domestic issuers. What interest rate would be most suitable for Kazakhstan? Can the issue put more pressure on the national debt?

- The situation in the international bond market remains favorable despite the increased risks of strong sales. The bond markets in the emerging economies have become slightly overheated, so the best moment has been lost. However, there is still a realistic chance for Kazakhstan to float its bonds at a good price. In any case, borrowing in the international markets will be cheaper for Kazakhstan than raising funds domestically. Besides, external borrowing will prevent additional pressure on the government securities and will reduce the borrowing costs for the domestic borrowers. The yield on Kazakh sovereign bonds might be below 3% should the bonds be issued for a period of five years.

- Kazakhstan is going to join the WTO this year. Vice Minister of Economy and Budget Planning Timur Zhaksylykov assured that the accession to the organization would not adversely affect the domestic industries. What effect do you think this will produce on the Kazakh economy?

- Of course, the accession to the WTO will affect our economy but I cannot say in what way. On the one hand, the effect will be positive as Kazakhstan will get access to more international markets which will bring more investments into the country, give the republic recognition as market economy, allow Kazakhstan to make use of the international mechanisms for dispute resolution, stimulate the domestic industries to become more competitive. On the other hand, imports of cheaper goods will go up, negatively affecting the domestic producers. In my opinion, after joining the WTO Kazakhstan will have more risks than benefits.

- The УpeopleТsФ IPO of KEGOC has been postponed indefinitely. One by one, the other Kazakh companies will offer their shares until 2015. Do you think the УpeopleТsФ IPO may run longer than expected?

- I personally would like this process to be more transparent. In any case, to put back the IPOs is the right decision, given the current situation in the stock market which is very slack. I believe this autumn will be the right time for KEGOC to come out with IPO.а First, because the global economy is expected to speed up, so the international markets will welcome this IPO, I reckon. Second, because of the seasonal biorhythms Ц human beings are most active in autumn.

Judging from the previous IPOs and my personal experience, I would say that the УpeopleТsФ IPOs will be delayed. I am nearly sure. There is also a probability that the УpeopleТsФ IPO program will be scrapped after one or three national companies issue their shares. This may be prompted by either internal or external factors.

I believe that international investors are not interested in our "people's IPO" as the free float of our companies is rather low, the domestic market demonstrates a low liquidity, the conditions are not very convenient, and there are political risks. Perhaps, the investors may find some of our companies attractive. Anyway, to get the investors more interested our companies should come out with IPO in the international markets, as the foreign investors always welcome privatization initiatives.

- The Kazakh stock market is falling because of a number of factors, such as the small number of issuers and investors, lack of confidence from foreign investors, our pension reforms and so on. What is your forecast for the domestic stock market for the next few years?

- I do not think the market will drastically change in the next ten years. Currently, our stock market is very weak. The investors prefer to wait, the liquidity is low, and there are very few good investment tools in the domestic market compared to the growing global market.а The Kazakh stock market is shrinking because the quality of the financial instruments is very poor, the laws have been revised to become much tougher, the number of market players has decreased, and the government has organized a centralized pension fund.

The market will have to focus on private investors after the pension assets are consolidated under the new centralized fund. аThe pension savings in Kazakhstan are very low Ц only around 3,000 USD per adult. The market players pin hopes on the УpeopleТsФ IPO which could improve the situation. However, this is a very long process which requires changes in the market infrastructure. A lot depends on the government here. In the long term, the stock market could revive if the government played lesser role in the economy, stimulated SME and deregulated the market.

- Head of the National Bank Grigory Marchenko said that the whole country would benefit from a centralized paymen`t processing center, which will own all ATMs and POS-terminals. According to Mr Marchenko, the bank fees will halve after the new center is in operation. What is your opinion about the idea of creating a centralized payment processing center?

- I am against any decisions that are detrimental to competition, especially in the financial sector because no development is possible without free competition. This project requires a lot of thinking and analyzing. To be honest, all promises made by the National Bank do not look convincing as they are not supported by any detailed calculations or market forecasts for the next 3-5 years. I strongly doubt that the National Bank will be able to work as efficiently in this area as the second-tier banks. I mean the ability to introduce and upgrade technologies. In addition, centralization of this function will entail new risks. As regulator, the National Bank will have more workload, also added by the new centralized pension fund. Will the National Bank turn into УJack of all trades?Ф I would suggest leaving things as they are now.

- At the moment the Kazakh banks has a lot of problem loans, insufficient provisions and capital, low profitability and a slow lending growth.а Do you think Islamic banking and new financial products can change the domestic banking system? Is there a demand for the Islamic securities Sukuk? What are the prospects of the Islamic banking business in Kazakhstan?

- The Islamic banking is developing very slowly in Kazakhstan as its instruments are not much in demand. However, there are some achievements here too: a law on Islamic banking was adopted, a number of new financial institutions organized, and Development Bank of Kazakhstan issued Islamic bonds Sukuk "al-Murabaha" for 240 million Malaysian ringgits.

Judging by the volume, this type of investment is not a competitor to the regular banks despite the fact that the Islamic banking grows by 15-20% each year. Investments by the global market are valued at over one trillion dollars. So the market share of the Islamic banks is rather small.

- Thank you for your time!

June, 2013
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