April 10, 2024

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Business is my step

The Biggest Surprise In 2020 Frontier Financial Markets

7 min read

Who would have thought that a bank only Russians and Kazakhs really know about, would launch this fintech app, being first to market, leapfrogging everyone in Central Asia, and list its shares on the London Stock Exchange and Astana International Financial Center? And then went on to become one of the four biggest IPOs of the year at the time.


That’s Kaspi. Their IPO opened in the high $30s in mid-October. The stock now trades at around $53. Their IPO proceeds of nearly $1 billion put them up there with Russia’s state-controlled shipping giant Sovcomflot which went public in Moscow on October 7, European online retailer The Hut Group and e-commerce group Allegro as the biggest listings from Moscow to London in 2020. Remove the Russians, and Kazakhstan was the third biggest. Amazing, considering Kaspi is not something people use in Europe, unless they’re Kazakhs.

Almasadam Satkaliyev, managing director of Samruk Kazyna, the country’s sovereign wealth fund and major investor in the Central Asian nation’s state-owned enterprises says it will be selling off shares to the private sector in at least two holdings next year: postal delivery company Kazpost and power utility company Samruk Energy. The IPOs will be offered at AIFC in the Kazakh capital.

Then there’s the much bigger bond market. Kazakhstan is investment grade, unlike Brazil, for example, once a global bond investor darling.

Kazakh bonds are now priced more expensive than Russia and China bonds of similar yield and maturity dates. Russia is the best comparison here because both are BBB credit. China is grade A.Kazakhstan’s lowest yielding euro bond (2026) pays just 0.6% interest and is priced at 101.3. Russia’s lowest yielding bond, maturing in 2027, pays a 1.1% yield and is priced at 100.4. KZ is more expensive.

Kazakhstan’s highest-yielding bond, the 2025, priced in dollars, has a 5.12% coupon rate and it’s now priced at 117.96, or 17% higher than par value. For comparison, Russia’s 7.5% 2030 bond is priced at 116.4.

China’s lowest yielding bond, paying a sad 0.12% to the Europeans, due 2025, is priced at 100.8. Kazakhstan’s 0.6% yielding euro bond is obviously more interesting, and is reflected in the price. China’s 2027 2.65% dollar bond is priced at 109.7. All bond data from CBonds.

Wall Street investors are already worried that the Biden Administration will increase debt, usher in negative interest rates to lower principal on that debt, and make emerging and frontier market bonds like those three above even more interesting (and pricey) than they already are.


Kazakhstan is the most promising investment story in Central Asia in 2020. The one thing that I always bring out to highlight the country is the Astana International Finance Center, the Disney Epcot looking finance center built in Astana (since renamed Nur-Sultan). That place’s entire mission has been to leapfrog from a vast and forgotten land it was at the fall of the USSR, to a country that’s the biggest market in Central Asia. As Central Asia is becoming an emerging market, Kazakhstan thinks it can be the best bet for corporations and investors dying for something new.

The fact that it is in the hotly contested Eurasia landmass makes it all the more interesting from a growth perspective, and a geopolitical one.

“The AIFC is the window to the Kazakh economy,” says Jacob Frenkel, Chairman of the Board of Trustees of the G-30 and former Chairman of JP Morgan International. “To attract FDI, to diversify the economy, to develop capital markets and to achieve sustainable economic growth,” he says, a lot of it will come from the AIFC.


Kaspi didn’t come from there, but it did float part of its shares on the Astana International Exchange. There are other fintechs brewing inside the AIFC, but none are scheduled to do an IPO just yet.

They should take a cue from China,  and create some sort of Nasdaq
-like exchange for its new up-and-coming digital economy players. China has its STAR Board in Shenzhen, for example.

AIFC is geared up to be the futuristic braincell of Kazakhstan. All of the new IPOs and secondary offerings will either come from companies listed on the exchange housed inside of it, or from new firms born and bred there. Kazpost and Energy may list there next year, although no dates are available just yet.


The US, Russia and China In Kazakhstan

For the geopolitical, big picture investors, if you believe Eurasia is the next big emerging market, and if you trust that Kazakhstan is going to be what people at JPM and Goldman Sachs
think it can be (given the neighborhood), then it’s arguably the only country in the former Soviet republics worth looking at yet again in 2021.

Some may argue it is Pakistan, but Pakistan has more drama and is already part of the MSCI Emerging Markets Index. It’s arrived. Kazakhstan is still getting there, aiming to enter the MSCI Emerging Markets Index.


China and Russia think so. They are competing with far away interests in the United States to gain even more influence. For now, China and Russia are dominant.

Russia is lobbying to get Sberbank’s Sber system, which is a tech platform that would compete with U.S. systems run by Microsoft
or IBM
, for example, to be part of the country’s digital infrastructure. After the fall of the Soviet Union, Russia basically switched to U.S. tech products and computer hardware. Russia doesn’t want to Kazakhstan do that with the Americans. They want Russian tech in there.

It’s not only about the new digital economy, of course. Kazakh’s economy is still old school. The AIFC governor, Kairat Kelimbetov, wants to position Kazakhstan to become a bigger, regional agricultural power, namely in helping to feed the Chinese, the world’s biggest ag importer.

“Agricultural products will be in great demand. We have an advantage,” he said in the local press recently. “We must take full advantage of it.”


Kelimbetov is the most outspoken pro-Kazakh voice in global markets. The former central banker between 2013-15 is well known within the circle of global finance ministers and is the one their leadership thinks is the best to make the rounds in selling Kazakhstan to investors.

In September, Kelimbetov was appointed as the head of the new Strategic Planning and Reform Agency, where he is aiming to replicate the new institutions in strategic growth sectors.

As a corporate investor, China state owned enterprises have multiple investments in Kazakhstan, especially resource-related.


Beijing’s official mantra of “win-win” deals has been the core of government-to-government industrial transfer deals between China and Kazakhstan for at least seven years, giving them impressive soft power there.

A $2 billion China-Kazakhstan economic cooperation fund launched in 2013 to fund industrial investment from China to Kazakhstan. A year after that was launched, Chinese Premier Li Keqiang committed another $18 billion to Kazakhstan.

During Li’s visit at that time, accompanied by almost 300 Chinese businessmen, a list of 79 projects were identified by the Kazakh government and submitted for approval to their Chinese corporate investors. As of last year, 56 projects were approved by the Chinese. Fifteen were completed this year, according to a story in The Diplomat magazine this month.


In the next five years, Chinese economic growth will dictate the willingness of Chinese state-owned enterprises to commit to new large oil and gas projects in Kazakhstan next, made possible by funding from Chinese policy banks.

Some of these projects could go to the U.S. oil and gas players, but they are often outbid. Not just in Kazakhstan, but anywhere China is bidding for a government contract.

The Export-Import Bank of the U.S. is said to be looking at rules changes for which American companies can more easily qualify for an ExIm Bank loan in order to better compete with the subsidized rates offered by China.

The good news for Kazakhstan is that it has three suitors, all equally enticing and powerful for that economy: the U.S., Russia and China. Assuming none of those three players abandon Kazakhstan in 2021, and knowing interest rates will be low and investors are always looking for the next big thing, Samruk and other entities, like Kaspy, will probably find a welcoming market again next year.


Over the last two years, Kazakhstan says it has brought in 500 companies from more than 42 countries to set up offices inside the AIFC. Some are bigger than others, and more globally known, like the Russian oil and gas giants, and their financial subsidiaries.

Next year will also be planning for new secondary offerings of at least three state owned companies on the Astana International Exchange: KuzMunayGas will float more shares; Samruk owned metals producer Tau-Ken, and airlines Astana Air and Kazakh Air are all planned to list more shares in 2022.

“Our aim is to fill a gap in Central Asia,” Kelimbetov wrote in an op-ed published in The Business Times of Singapore earlier this month. “We can model it after the key nodes of the world such as New York, Dubai and Singapore in order to attract capital, talent and expertise.”


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