The government is offering a substantial list of enterprises for tenders. Mr.Berik Beisengaliyev, Samruk-Kazyna’s Assets Optimization Managing Director and one of the members of the Board of Directors, tells Vlast.kz how Samruk-Kazyna will sell our entities currently owned by quasi-state sector of economy.
Mr. Beisengaliyev, the privatization list is inclusive of a significant number of companies owned by Samruk-Kazyna. At which stage is currently the preparation of those companies to the total denationalization?
As you know, 783 companies will be privatized in Kazakhstan in 2016-2020. Out of them, 217 companies are presently owned by Samruk-Kazyna. The latter divided the privatization list into two sub-lists. The first sub-list was made to include 44 big assets, out of which 7 will undergo IPO: Kazakhstan Temir Zholy, Samruk-Energo, Kazatomprom, Kapost, KazMunayGas, Teu-Ken Samruk and Air Astana. The remaining 37 assets will be offered for tenders this year and the process is supposed to end by the last of 2018. The second sub-list is inclusive of 173 companies, the majority of which companies will be sold out by the end of this year. We analyzed many of those companies and made decisions based on the specific features of the regions, interests of the workers and social burdens carried by those enterprises.
Today, we already see certain progress with the second list. State Commission on Modernization of Economy, the governmental body that issues the final approval of privatization decisions, has already issued its verdicts as to 100 companies. Some of those companies will be auctioned, some of them will undergo reorganization and there are companies that will be liquidated. In general, we expect that the first auctions will take place in the nearest future.
As to the first sub-list of the big and significant assets – we are in pursuit of quality privatization, not the fastest privatization. In the past 3 months we, first of all, were busy designing the methodology and performing the analysis, as well as organizational affairs, to ensure the success of the program. We expect that the companies on this particular sub-list will be privatized by the end of 2018, except of IPOs – public emissions will be performed in 2018-2020.
The privatization list is inclusive of country’s biggest companies, those that represent the strategic industries of the national economy. There are plans to IPO those companies, not through Popular IPO, but by means of original offerings. In which exchanges will those emissions take place? What will be done in regards to society’s worriedness that strategic assets will fall under foreign ownership
We currently view the Astana International Financial Center as the priority platform for IPO. The leadership of Kazakhstan contributes all efforts to make that project a success. As a state holding company owned by government, we also must contribute into the process. The success of privatization will be evaluated form standpoint of long-term and structural benefits to economy, such as development of market and financial institutions, healthy competition and sustained economic development in the subsequent years. There certainly is the temptation to focus on snap financial income from privatization, but we rely on long-term and strategic effect.
Open market offerings are planned for 2018. By that time, we will fulfill the analysis and make decisions as to shares, places where offerings will be made and other aspects, considering benefits for the company to be offered, the Fund and the country. Final decisions shall always be made by our Shareholder, the government, depending on its own view on Kazakhstan’s social and economic development.
As to worriedness, all investors will have equal access to IPOs and auctions. When assets are sold out, priority will be attached to local investors and only in cases when their proposals are equally attractive in regards to other factors.
If we discuss direct sales to foreign investors, in that sphere we would like to see more joint ventures between foreign and Kazakhstan companies. In general. We view our partners in existing JVs as the first category potential buyers. The majority of those partners manifested themselves as reliable partners and their contributions into the development of the Samruk-Kazyna companies are realistically significant. Just take a look at products manufactured together with General Electric or Air Astana that improves the quality of its services every year and some other companies.
In general, we believe that foreign players are capable of offering many things to our companies. We are looking at their industry expertise and modern technologies, as well as at bridges to international markets that those companies have.
We wish to specifically emphasize that the state shall under no circumstances lose control of its strategic assets. When we IPO companies, we will be offering just parts of shares, while control shares shall at all times stay under the ownership of the state.
Air Astana is already half owned by an investor from UK. The state share of the company is also on the IPO list. What share of that package is planned to be privatized? That, in virtue, means that state delegates control of the company. Air Astana is a dominating subject of the aviation business in Kazakhstan. Do you not have apprehension that country’s aviation market will become a hostage of foreign companies, that will dictate their conditions and the government will have to accept those conditions, so not to paralyze the market in general?
Air Astana is presently being prepared to IPO. The preliminary time plan for that is 2018. In the course of IPO preparation, we will take account of all issues, inclusive of company international obligations and liabilities. Despite privatization, the Kazakhstan share will constitute not less than 51%.
Please be reminded that one of the most important targets of the privatization is the development of competition in various sectors of economy and formation of effective market environment. In addition to Air Astana, we have other air companies, including our own perspective start-up Qazaq Air. That is why, foreign monopoly in the Kazakh aviation, like you say, is excluded in our case.
In addition to that, state will have enough remaining mechanisms of influence, including the regulation of industry and the possession of a significant package of shares of the company itself. We, however, would like to avoid such “manual operation” after privatization. Our objective is to form a system in which the industry will be capable of generating revenues, ensuring quality and accessibility of services to consumers without significant involvement of state. That is inclusive of transparent and stable game rules supplemented with self-regulation and high standards of corporate governance.
World practice offers examples of telecommunications privatization that brought reverse effects. New owners of companies were busy enforcing their monopolies, instead of developing companies. For example, in Australia in 2007, the government had to return to telecommunications and create one national broad-band network. UK also had a round of unsuccessful privatization, following which it had to nationalize assets that had been sold out earlier. Do you not fear the repetition of that sad experience during privatization of the Kazakhstan telecommunications assets? Kazakhstan had negative experience from cooperation with foreign investors in the energy business – Almaty Power Consolidated and Tractebel of Belgium. Taking advatntage of its monopoly position, the company would discretionarily increase tariffs. At the same time, the foreign partner did not even talk about some big-scale investments in to the asset. What are the lessons learnt from that experience and how could we avoid repetition of such situations in the present privatization campaign in Kazakhstan?
Before the start of the program in 2016, we studied international experience. We analyzed successes and failures in the global economic history and we included the findings into the present privatization program. The analysis we fulfilled is a good insurance against mistakes.
Kazakhstan itself passed through several waves of privatization and we already have some luggage of experience on us. Of course, nobody is in the position to promise ideal picture, but we definitely are not apt to face situations you are describing.
On behalf of the Fund, I can also say that we will approach all assets, all industries individually. We will very considerately prepare assets to sales and we will work to optimize regulatory activity and make investment agreements with buyers that ensure the balance of interests of investors, society and state.
There are three Kazakhstan refineries on the privatization list. Judging by reports, those refineries are presently under active modernization. How effective are state investments, if the facility is supposed to be sold out. How will the modernization of refineries influence their price?
Modernization is a part pre-sales preparation. It will definitely increase the demand on behalf of investors, which means it will influence the privatization price. Preparation, inclusive of activity optimization and modernization and reorganization, if necessary, will be performed in many big and perspective assets. We shall not make such generous gifts, as refinery modernization for free (laughs).
Is there information, what particular investors show the interest towards to be privatized assets, from what countries and what are the names of the companies? What is the sum you plan to generate from privatization of strategic assets, in particular and whole privatization, in general.
There is big interest shown to our privatization and the geography of interest is broad. We believe that the most probable partners are those, who already work with us in JVs and then strategic investors from Europe, Middle East and South-East Asia.
As to the sums, that we plan to generate from privatization, there are some nuances that should remembered with respect to that issue. Each company will be auctioned after an independent evaluation. Such evaluation is to take place shortly prior to the auction and its findings shall remain in effect for a certain period time, and such time will regularly be not very long. For now, we must be based on the evaluation of the balance value of the company, so to form our vision of the scale. The sum varies from KZT 2 to 2.4 trillion. Of course, we expect to make more from privatization. What appears important to be taken in account? The program was made for the period of 5 years. The realistic value of the company shall be fixed steady at the very moment of sale. In 5 years, the market situation may change and the company may change together with its value.
It was declared that the bargains will take place three rounds – English method in the first round, which is to deal for the rise, then Dutch method (dealings for the fall). How high is the probability of auction result manipulations, after which manipulations, for example such assets as JSC Maykayinzoloto or LLP Tulpar Talgo are sold through dealings for the price cut? Will it be possible to drop the asset price down by means of a chain of fake companies?
Assets, like Maykayinzoloto or Tulpar Talgo are big companies, with great social and economic significance. They will not be sold out through electronic auctions. For them, we will envisage several privatization options, such as selection process, public offerings and strategic investors. Individual options will be selected for each individual asset in the course of pre-sales preparatory activity.
As to manipulations, the accelerated privatization will be possible only for small enterprises. In doing so, we will have English auctions (for rise) in the first run. If English auctions attract no buyers, we will go for Dutch auctions (for drop down). Any “smoke-and-mirrors” are of low probability, because any interested investors will be allowed to take part in electronic auctions and if they show interests towards assets, then with great probability, we will not have to go for dealings for price reductionт.
In clarifying the mechanisms of planned privatization, Ministry of National Economy explained us, as follows: in case of lack of buyers after three rounds, 100% of shares or the state shares in the charter capitals of such companies will be terminated. In other words, some enterprises will be, basically, closed? What companies from Samruk-Kazyna corporate family are most likely to meet that prognosis?
Yes, according to present rules, company liquidation is possible, if there are no buyers in all three rounds of privatization. But please be advised that such principle applies only to assets to be privatized in electronic auctions. Besides, any corporate actions of the kind must receive the prior approval from the Fund and from State Commission on Economy Modernization. We, of course, shall not allow the liquidation of profitable and promising assets. Liquidation is possible, but for companies that conduct no active economic operations and possess no development potential for future.