Wealth Fund Rid of `Pocket Change' Readies Flurry of Kazakh IPOs

(Bloomberg) -- Unloading what Kazakhstan's sovereign wealth fund calls “pocket change” was the easy part. Next up is the biggest wave of privatization in the Central Asian country's history.

Samruk-Kazyna, which gained assets accounting for about half of the nation's economic output after bailing out banks hurt by a financial crisis in 2007-2009, has embarked on a “program of transformation,” according to Berik Beisengaliyev, the fund's management board member. That's meant streamlining organization to reduce the number of firms it controls by half to about 300 by the end of this year, he said in an interview in Almaty.

“The emphasis of the first phase of privatization was on small companies,” said Beisengaliyev, who's also managing director of asset optimization at the fund. “Some got sold, some are being sold, some were liquidated. Now we are only starting with strategic assets.”

Kazakhstan is taking its time to let go of its crown jewels even after the worst oil crash in a generation clobbered its public finances. The second-largest energy producer in the former Soviet Union would need oil at $71 a barrel this year to balance its budget, compared with a forecast for prices to average $52.50, according to Fitch Ratings.

Samruk-Kazyna has more than $60 billion in assets and 360,000 employees, accounting for a quarter of all investment in Kazakhstan, according to its website.

Air Astana, Kazatomprom

The challenge starting next year is to find the partners and the right time for a selloff that Beisengaliyev has said may raise more than $6 billion. A decision on the first initial public offerings of the country's flagship carrier, Air Astana -- part-owned by BAE Systems Plc -- and uranium producer Kazatomprom will be made in the first half of 2018, he said.

Under the plan, Samruk and BAE will both lower their stakes, but Kazakh investors must retain a total of 51 percent of the company so it maintains its status as the national airline, according to Beisengaliyev.

“Air Astana will probably go first, then Kazatomprom,” he said. “Whether or not their shares are placed before the end of 2018 will depend on the situation” in the market.

The “second wave” of asset sales will include KazMunaiGaz National Co. and power generator Samruk-Energo, followed by railway monopoly Kazakhstan Temir Zholy and Kazpost, the country's national postal service.

“We expect to complete the placements in 2020, but there are no guarantees,” Beisengaliyev said. “What's unique about the situation for Samruk-Kazyna is that there's no urgent need to raise money by all means possible. The focus isn't on speed.”

Strategic Investor

Samruk-Kazyna will use the funds to develop new projects and reduce external debt of some of its subsidiaries, he said. For telephone monopoly Kazakhtelecom and mining company Tau-Ken Samruk, its plan is to get a strategic investor on board, according to Beisengaliyev. Several companies have already expressed interest in its mining unit, he said.

With Kazakhtelecom, the wealth fund is considering a sale of a 25 percent stake, with plans to bring in an international brand, he said. Samruk-Kazyna also won't completely divest its holding in shipper KazMorTransFlot, which is similar to an approach it wants to take with other infrastructure companies such as ports and airports, he said.

“We want to be as transparent as possible in this work to attract more investors,” he said. “The more investors, the bigger the price, in order to have more choice.”

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Paul Abelsky, Tony Halpin