Samruk Kazyna Privatisation Drive Offers New Investment Opportunities

ASTANA – Kazakhstan’s Samruk Kazyna Sovereign Wealth Fund is moving forward with its plans to sell a sizable part of the enterprises it controls to the private sector.

skBoth Kazakhstan-based and foreign investors will be able to buy shares in 106 companies the state-owned fund manages under the so-called second wave of privatisation. The estimated value of assets to be offered up for sale is $9 billion.

The first wave of privatisation took place in the 1990s when Kazakhstan moved to create a market economy out of the old Soviet, centrally controlled and planned economy.

The challenge of the current wave of privatisation is defined as strengthening the foundations of the market economy. The key idea of this campaign is to give impetus to the further development of private business in the country.

Samruk Kazyna will transfer companies to the private sector that were created as part of government initiatives on diversification of the economy and develop­ment of new industries.

The fund has worked on creating these companies under the instructions of the Kazakh go­vernment for a number of reasons, ranging from a lack of experience and financial capabilities of representatives of Kazakhstan business and the non-availability of strategic partners to work with to the need to provide funding on reasonable terms in the absence of state guarantees. Now the country’s leadership intends to sell these enterprises to the private sector, which has now matured and is better prepared to develop companies in the future.

Samruk Kazyna did sell part of its assets to the private sector before, but that time it had been the sale of non-core assets and facilities of the fund. By the end of 2013, out of 713 such assets and facilities, a total of 482 assets were released from the fund’s ownership, including 405 assets sold to the private sector.

This time, the privatisation will concern core assets in flagships of the national economy, such as KazMunayGas national oil and gas company, Kazakhstan Temir Zholy national railway company, Kazatomprom national atomic company and a global leader in natural uranium production.

International companies will also be able to acquire some companies in the Samruk Kazyna portfolio without restrictions for sale as a strategic or socially significant facility.

The list of assets sold in the competitive environment comprises those in which the fund intends to sell up to a 100 percent interest. Legally, restrictions on the sale of large stakes in international companies are not available. The exceptions are strategic assets, decisions on which are taken in consultations with the Commission on Strategic Assets under the Kazakh government.

Samruk Kazyna is also considering selling a part or a stake in some enterprises to transnational corporations. The reasoning behind this step lies in the expected transfer of new technologies, development of the industrial base and the extension of the range of export products.

At the end of 2013, Samruk Kazyna’s assets were valued at about $93 billion. The assets of the traded companies are estimated at about 10 percent of this amount. The fund’s management has already stated that the sales of the companies are subject to three key princip­les: transparency, legality and economic feasibility.

Nurlan Rakhmetov, Samruk Kazyna’s financial director and member of its board of directors, explained the meaning of these principles: “First of all, it is transparency. It is ensured by the use of the newest information technologies in order to ensure the transparency of measures for the realisation of the assets and facilities.”

Officials have already started implementing sales of assets on the electronic site of the Ministry of Finance of Kazakhstan at e-auction.gosreestr.kz.

“The principle of legality implies that all proposals for the realisation of assets will include the proper due diligence and that they will have to be free from the encumbrances or claims of the third parties. In accordance with the current legislation, a proposal on realisation of the pre-emptive right will be submitted on those assets of facilities where there is a second owner or shareholder. In case of refusal of the right, the assets or facility will be put up for auction and sold to the successful bidder determined in the course of the bidding in compliance with all rules,” Rakhmetov added.

“The principle of economic feasibility speaks for itself. The fund will realise assets at fair market value, trying to get maximum profit. If any assets do not find demand, the fund will take further decisions on the disposition of that property,” Rakhmetov added.

Currently, the fund is actively reaching out on the sale of its assets, regularly publishing information on the sales. The plans include holding regular public meetings with potential investors and buyers.