ASTANA – The Samruk Kazyna National Welfare Fund announced at a meeting of fund companies on Feb. 26 that it will focus in 2014 on implementing the elements of the Kazakhstan Way 2050 strategy laid out in President Nursultan Nazarbayev’s latest state-of-the-nation address. Kazakh Prime Minister Serik Akhmetov attended the meeting, which was followed by a benchmarking analysis on Feb. 27 by the fund’s chairman of the board, Umirzak Shukeyev.
“This year we will focus on implementing the tasks set in the Kazakhstan Way 2050 state-of-the-nation address and on achieving the goal of becoming a strategic holding company,” Shukeyev said.
According to Shukeyev, in order to implement the President’s instructions to transfer state-owned enterprises to the private sector, Samruk Kazyna will submit to the government a list of Samruk Kazyna companies proposed for transfer to the private sector in the first quarter of 2014. According to preliminary data, the list is expected to include more than 80 companies.
When selling shares in subsidiaries and affiliated companies, the fund intends to attract strategic and portfolio investors and move them on the stock market, including within the People’s IPO programme. Shukeyev stressed that the fund and the government will also make proposals for further implementing the People’s IPO programme within one month
The fund also intends to complete the withdrawal of remaining non-core assets and facilities from the group. “In 2014-2015, we plan to remove 75 assets and facilities. In general, this withdrawal will enable us to get rid of the loss of 5.7 billion tenge ($30.8 million). Another 156 non-core assets will also be reviewed,” he said.
Another important direction of work will be the deployment of the Fund Transformation Programme, transitioning from its current model of work as an administrator of the transferred state assets to an active investor’s role.
“World practice shows that the leaders of national welfare funds such as Khazanah, Temasek, Mubadala pass through this stage of evolutionary development and become active investors in order to maximise value for shareholders,” Shukeyev said.
According to Shukeyev, the essence of the fund’s activity is to focus on two areas: first, to increase income from established companies through improving the operational efficiency of businesses on all levels and second, to direct income toward portfolio expansion through the development of startups and new directions.
Samruk Kazyna also intends to change its approaches in investment activities and increase the proportion of debt capital in the financing of projects from the current 54 percent to 70 percent. Overall, in 2014, the fund plans to complete 18 investment projects worth $3.3 billion, while under the State Programme of Accelerated Industrial and Innovative Development (SPAIID) six projects are slated for completion in 2014.
The meeting also looked at the fund’s 2013 performance and announced that the fund’s 2013 activities showed positive results in key financial performance indicators.
The fund’s initiatives implemented in 2013 led to an increase in equity of the fund’s companies to a total of $52.5 billion, a 12 percent increase over 2012. The key performance indicator (KPI) of operating earnings (EBITDA margin) also increased from 19.3 percent in 2012 to 20.5 percent in 2013. Net profit, excluding second-tier banks, rose from $3.4 billion in 2012 to $3.5 billion in 2013.
Other 2013 fund successes included the implementation of programmes to withdraw non-core assets, reduce costs, centralise treasury functions and implement e-procurement systems. In line with the President’s tasks of 2013, the fund left the capital of second-tier banks, signing all transactional documents on the sale of Temirbank, BTA Bank and Alliance Bank shares.
Samruk Kazyna also transferred the Baiterek National Managing Holding, the Development Bank of Kazakhstan and KazExpoGarant to state ownership.
According to Shukeyev, who also spoke on the subject at a Feb. 27 briefing at the Central Communications Service, there are 73 national welfare funds in the world and 23 state bodies that manage national companies. Five with similar mandates and portfolios starting from $40 billion to $175 billion were picked for a benchmarking analysis by McKinsey and Company, Inc. According to McKinsey’s results, Samruk Kazyna is ninth in the world in total assets, first in its level of disclosure and its rate of return on equity was no less that that of similar counterparts. Investment activity was pointed out as an area to improve.
Subsidiary KazakhTemirZholy was ranked 11th in the world among the biggest railway companies by cargo turnover and 15th for income aggregate.
Air Astana has a rating of four stars and had been named by Skytrax as the Best Central Asian and Indian Sub-continental Airline. The Kazakh airline was rated in top 50 world airlines by Airfinance Journal for the third time according to financial parameters, income, profit per passenger, low administrative costs, EBITDA margin and rate of return on equity.
According to the Energy Intelligence, in 2012, KazMunayGaz was ranked 33rd among the 100 largest vertically-integrated oil and gas companies in the world.
A comparative analysis of the operational and financial performance of Samruk-Energo with leading companies in the fuel and energy sector in Kazakhstan and Europe indicated the need for more innovative development and production efficiency.
Shukeyev underlined that the benchmarking of most of the fund’s companies pointed to a lack of productivity.
The overall conclusion of the results of the benchmarking was that the fund and subsidiaries need to use the experience of the world’s leading companies and improve operating efficiency. Most importantly, they must keep pace with changing times to implement changes that allow for better returns.
Samruk Kazyna will seek to attract more foreign investments and increase the proportion of debt financing (up to 70 percent of the project cost), as well as to attract strategic partners to access technology and markets. The fund plans to refocus on attracting private capital through the implementation of cost-effective projects.
The assets of major subsidiaries total $82 billion, of which the majority is allocated to the oil and gas sector (60 percent), logistics (20 percent), uranium mining (5 percent) and telecommunications (4 percent). The rest of the sectors total 10.3 percent ($8.5 billion).
In order to diversify activities, the national welfare fund is actively developing startup companies in the sectors of power generation, mining and metallurgical complex, chemistry, engineering and construction.
Total investment in these segments shall amount to $25 billion, with the share of investment by subsidiaries and affiliates accounting for about $4.5 billion. A result of this investment is expected to increase the value of assets of start-up companies from $8.5 billion to $39 billion, which would achieve capitalisation growth of start-up companies to $11 billion.