KEGOC to launch IPO by End of June

ASTANA – KEGOC, the Kazakhstan Electricity Grid Operating Company, will issue its Initial Public Offering (IPO) of shares by the end of June, a press conference was told on March 18.

KEGOC is part of the Samruk Kazyna National Welfare Fund. The move follows the first successful IPO offering issued by KazTransOil (KTO), the country’s largest oil pipeline company, late last year.

Later this year, KazTransGas (KTG) and Samruk Energo will also issue their IPO shares offerings, the press conference was told.

Deputy Prime-Minister Kairat Kelimbetov told the press conference that the first round of the People’s IPO Programme had been a success. The value of the new shares had increased and boosted the value of KazTransOil (KTO) in 2012. The company reported a net profit of 33.5 billion tenge ($220 million) in 2012, a 29.1 percent increase on 2011.

“Since offering shares in November-December 2012, the share price has increased by 10-14 percent,” Kelimbetov said. “The demand for KTO’s shares was oversubscribed by more than two-fold, after they were issued at a price 725 tenge ($4.80) per share. Since trading started, the share price has risen to 800 ($5.30) to 830 tenge ($5.50).”

“KazTransOil will distribute dividends for 2012 and direct more than 40 percent of its net profit into its shareholders’ dividends. The shareholders will receive returns on their investments and invaluable experience of co-ownership of the largest national assets,” Kelimbetov said.

The amount of the dividends will be announced in May after the Annual General Meeting of KTO shareholders.

Bank CenterCredit (BCC) investment analysts say the results of KTO exceeded expectations. They predict the minimum commission rate will be 38 tenge (25 U.S. cents) per share, 5.2 percent of the offering price or 4.6 percent of the current market price.

Halyk Finance has revised its forecasts for KTO shares and projects that their value will continue to rise. Experts say the cost of oil transportation services in 2012 grew only by 4.2 percent – to 2,103 tenge/1,000 kilometres ($13.94 for 600 miles), which is below the inflation rate for the year and the recent rate of cost growth (8,6 percent in 2010, 13.1 percent in 2011).

“We have revised our valuation model, reducing growth forecast costs, and as a result we have increased our estimates of the fair shares value to 854 tenge $5.66) and raised our 12-month target price to 912 tenge ($6.04) per share and recommend buying shares of KTO,” a Halyk Finance analyst said.

The Asyl-Invest Company recommends purchasing KTO shares as a protective hedge against the expected strong correction in global financial markets. Experts believe there are three factors that can boost the value of KTO shares: the possible transit of 7 million tons of Russian oil per year through KTO’s pipelines in Kazakhstan to China, possible additional payments from the Russian company Transneft to KTO worth $65 million for oil, and the new tariff for oil transportation at the Kasymov oil station which was approved on February 11.

KazTransOil’s own management projects significant revenue growth in 2013 that will make the company’s securities more attractive to investors.

“I can definitely say profits will be higher in 2013, because the tariff for oil transportation was raised on Dec. 1, 2012 for both the domestic and foreign markets. The company’s profit will rise significantly, 30 percent in 2013 above that of 2012,” KazTransOil Director General Kairgeldy Kabyldin told the press conference.

KazTransOil issued 38,463,559 shares (just under 10 percent of its total shares) on the Kazakhstan Stock Exchange (KASE) in 2012 and they were bought by 34,000 private investors and 10 pension funds. In Almaty, 4,200 people bought 48.06 percent of the entire IPO issue, in Astana, 2,500 bought 14.35 percent, in Aktobe, 4,785 bought shares, in Atyrau, 4,595, and in Mangistau, 4,614.

Samruk Kazyna announced the basic documents for the KEGOC IPO issue have already been prepared. KEGOC currently has 10,767,297 shares in circulation at a nominal value of 10,000 tenge ($66.27) each. The company’s registered capital is 106.8 billion tenge ($710 million). Its revenues came to 71.674 billion tenge ($475 million) and its net profits came to 6.941 billion tenge ($46.3 million).

New oil tariffs will increase the profitability of the company over the next three years.

Independent Kazakh and foreign consultants have worked on preparing the new IPO issue including Halyk Finance as financial consultants, Citigroup Global Markets as international financial consultants, Dechert as legal advisors, Fichtner as technology consultants, Deloitte as a consultant firm to review financial reporting procedures, Due Diligence and DF King WorldWide (Europe)/APEX Consult.

Until 2006, KEGOC was a 100 percent state-owned company. In 2006, all of the state stock was transferred to the Samruk Kazakhstan Holding for Management of State Assets as payment for the placed shares. In 2008, the merger of Kazyna Sustainable Development Fund and Samruk Kazakhstan Holding for Management of State Assets created the Samruk-Kazyna National Welfare Fund which now owns all KEGOC’s shares.

KEGOC’s main goal is to maintain the steady operation of the country’s unified energy system and to exercise reliable control of the National Power Grid maintaining engineering, economic and ecological requirements set up by the government. It aims to establish world class operating standards and to become Central Asia’s most advanced utilities provider by 2025.

KEGOC) received a GAMMA-5 (Governance Accountability, Management, Metrics and Analysis) rating from Standard & Poor’s Corporate Governance Rating Service on March 15, 2010.

On Dec. 22, 2010, Fitch Ratings confirmed KEGOC long-term foreign currency Issuer Default Rating (IDR) at BBB and upgraded the company’s prospects from stable to positive. Its short-term foreign currency IDR was confirmed at F3.

On April 20, 2011 Moody’s Investors Service confirmed KEGOC’s senior unsecured debt rating at Baa3 and upgraded its rating from negative to stable. This change reflected KEGOC’s strengthened financial profile in 2010 generated by the national economic recovery, supportive new tariff regulations and a limited reduction of investments compared to 2009.

Experts believe KEGOC’s ratings continue to be aligned with the sovereign ratings given the state guarantees for 56 percent of its debt. KEGOC is under full state control and enjoys strong government support.

KEGOC, as a subsidiary of Samruk-Kazyna, serves as the system operator of Kazakhstan’s single power grid. It operates 24,500 kilometres (15,223 miles) of power lines with a capacity of 110-1150 kV and 74 power stations with an installed capacity of transformers of 33.6 GVA.

An Initial Public Offering or IPO is the first public offering by a company of its shares for sale. The People’s IPO programme allows Kazakhstan citizens to buy shares in the largest national companies to share in their profits. The companies issuing the People’s IPO shares were selected from the most stable corporations in the country operated by the Samruk-Kazyna National Welfare Fund. Ownership of shares in successful companies will give citizens the opportunity to profit from their development and growth through rises in share values and through the payment of dividends.

Experts believe the programme will help the development of Kazakhstan as a regional financial centre in Central Asia.

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