CEO of Astana International Exchange (AIX) Tim BENNETT:
THE INVESTORS HAVE BEEN PLEASED TO CHANGE INVESTMENT FORUMS TO ONLINE MEETINGS
The coronavirus pandemic compelled the financial market players to reconsider their approaches to work and adapt to new realities. In an interview with Interfax-Kazakhstan Chief Executive Officer of Astana International Exchange (AIX) as part of the Astana International Financial Center (AIFC) Tim BENNETT talked about what changed in the stock markets operations and how the activity of trading floors was formed up under a state of emergency and lockdown.
- Mr. Bennett, last week, Samruk-Kazyna completed the sale of its remaining part in the 25% stake in Kazatomprom, including on the AIX platform. How do you assess this placement? How successful, in your opinion, is the time chosen to sell the stake?
- The privatization of Kazatomprom was a great success. The final stage occurred during the crisis caused by the pandemic, nevertheless, SKmanaged to attract almost $211.6 mln as a result of the second SPO. More than a third of these investments were attracted through Astana International Exchange. With the current secondary placement, the total freefloatof Kazatomprom shares was brought up to 25%, which will contribute to the growth of liquidity of the company's securities.
What’s especially encouraging, the demand from local investors was so high that the limit on the book of applications for the purchase of shares was almost three times exceeded. We see how the retail investor base is steadily growing, and that is a very important indicator for the stock market.Currentlythe demand from retail investors is 5 times higher than during the previous Kazatomprom SPO in 2019. In just a year, we have made huge progress.
I am confident that this deal will contribute to the further success of Kazakhstan’s privatization program and increase the country’s investment attractiveness, as well as provide confidence for other issuers to launch IPO’s or new placements as markets gradually recover after the pandemic.
- Tell us how has the COVID-19 pandemic affected the exchange operations and plans? Do you have any projects you wanted to implement during the lockdown and global pandemic, but were unable to?
- The lockdown has not affected the AIX trading platform, and we continue to operate within normal working hours. We have taken all necessary measures to minimise risks to employees’ health, at the same time guaranteeing uninterrupted trading.
We have been seeing a significant increase in the AIX trading activity, up 30% on last year. There is nothing surprising in this, as this seems to be the case across the world. Traders have begun to trade more actively to capitalise on the market’s reaction to news or new trends.
As for our projects, many of them have undergone changes, while others, such as the KazMunayGas IPO, have been postponed until market certainty returns. On the whole, our goals remain the same, but the deadlines, marketing and communication tools have changed. We have gone almost completely online in our investor and issuer relations, and are developing new communication tools everyday.
- Are we likely to see any new AIX listings this year? If so, in which sectors and when?
- AIX is an actively developing exchange, so our priority is listing company securities and raising capital for their growth. We continue to work on developing interesting new financial products and will launch them when market demand resumes.
As the situation on many exchanges shows, companies around the world are currently very wary of initial public offerings (IPOs). Kazakhstan is no different. Local businesses continue to watch how events develop and don’t seem to be in any hurry to go public.
However, we still need to realise that the economic downturn, which will affect the whole business community, will eventually lead to an increase in the need for foreign and local investment. We are already seeing growing interest from the mining and resources sector to fund exploration and from operational businesses to reduce leverage.
Kazakhstan’s business sector can no longer depend on the banking system and the state, and as we have seen in the past three or four years, business lending has declined significantly. With that in mind, it is critical that Kazakhstan puts a mechanism into place to allowthe exchangeto operate as efficiently as possible, attracting capital to businesses to help them resumeoperations, restore jobs and help the national economy grow as a whole.
- How do you think the pandemic has affected the stock markets across the world and in Kazakhstan? What, in your opinion, will change in the stock market operations?
- The global markets have all reacted sharply to the pandemic. Most stock indices, if not all, fell by an average of 20-30%. However, recently, we have begun to see significant “rebounds” and this indicates that the chaos caused by the pandemic is beginning to gradually streamline in the main global markets. Having said that, the economic impact of the pandemic will continue to be feltfor some time, with the overriding consequence being a high degree of market uncertainty. This is borne out by the VIX indicator (volatility index), which is still double what it was this time last year. Therefore, I think that some time needs to pass before we begin to see a decrease in volatility, and we need to prepare ourselves for some significant market fluctuations before the end of the year, for sure. The market rebound had been largely based on central bankactions;but the medium-term outlook will be determined by the strength of economic recovery.
- Kassym-Jomart Tokayev said recently that the AIFC needs to realise its potential to attract investment and develop the stock market, “especially in the light of the upcoming privatisation of state assets.” What stock exchange measures do you intend to implement to act on the President’s instruction?
- The goal of developing the Kazakhstan stock market has always been key for us. The key element in the current situation is that most of what we do has gone from offline to online. And this has had its advantages. Instead of having to organise investment forums and investor days, which have always been capital-intensive in terms of man-hours and financing,we have been able to switch to a webcast format that allows us to reach a wide investoraudience without any significant costs. I think investors have welcomed theonline option, as they don’t have to spend valuable time on logistics, flights and meeting planning, and literally without leaving the house, they can get all the information they need about issuers, economic reviews and first-hand material on measures taken by the government. Another positive is that investors have found it much easier to organise meetings, although virtual, with senior managementinAIX-listed companies, which was always fairly difficult to do before and rarely ever happened. In this process, AIX will act as the link between current and potential issuers in Kazakhstan, government agencies, the regulator and the foreign investment community.
Overall, the strengths of AIX and the AIFC have not changed, and both structures continue to be an attractive environment and infrastructure for investment.
- The AIFC administration is currently developing a new strategy into 2025. Are stock development plans part of this strategy? If so, which ones?
- Of course, the AIX development is an integral part of the AIFC’s strategy. Our main mission is to develop the securities market in Kazakhstan and integrateit with international capital markets. We are committed to participate actively in the State Privatisation Programme and help a number ofprivate companies in their preparation to list onthe stock exchange, including junior mining companies, and are also working on developing a base of retail investors.
- What form does your work with retail investors take?
- One of the most important issues at AIX is the financial affordability of securities for the average Kazakhstancitizen, which is why AIX listed exchange traded notes (ETNs) in December last year, giving people with less disposable income the opportunity to invest in securities, and not just in the shares of well-known companies, but in structured portfolios, for example, in the 500 securities of the largest American companies on the S&P 500 index.
AIX ETNs are a perfect product for what I describe above. They are easy to understand, represent a portfolio of foreign company stocks or bonds, or market indices, or, for example, can belinked to the commodity market, reflecting the oil price. ETNs are based on international funds with profitable assets, most of which are denominated in USD or European currencies, which is why they are an attractive alternative to bank deposits and offer the opportunity to diversify how you manage your finances.
- Previously, you mentioned that the AIFC exchange is ready to provide a platform for Uzbekistan companies. Has there been any progress on this?
- We have done a lot of preparatory work to put this initiative into practice, but the pandemic has forcedus to make adjustments. We hope that as soon as the world adapts to thenew reality, we will be able to return to the project. I think it is worth repeating that foreign investorstend to be more interested in the region as a whole rather than in separate countries and considers Central Asia a single structure or market. The region offers a number of benefits, such as macroeconomic stability, a large domestic market and a large workforce. I firmly believe that in investmentterms, if we look at the Central Asian region, the whole is definitely greater than the sum of its parts. For example, the wider the choice of opportunities for investors, the more likely theyare to invest in Central Asia. Individually, each country in the region may only bring only 5-7 companies to IPO, or even fewer. Investors might treat this as an insignificant “assortment”. However, if there are 10-15 or more companies of interest on one site, then investors are more likely to redirect investment from other markets to the Central Asian markets.
We are open to all the Central Asian companies. Of course, many of them are not yetready, but this does not mean that they won’t be. They will change if they decide they need to. It’s not a quick process, and companies preparing for IPO from scratch tend to need three to four years as they put their financial statements in order, find an auditor, establish corporate governance, create a board of directors and so on. But one thing they need to understand is that they can enjoy the same services on AIX as they would on the world’s leading exchanges, but for less cost; and listing takes less time and involves far easier discussions.
- How is work on the “One Belt, One Road” project progressing amid the pandemic?
- Work on developing the AIX Belt and Road special segment continues despite the negative impact of Covid-19.
On 20 March this year, AIX worked with the Astana branch of China Construction Bank to list Kazakhstan’s firstever yuan-denominated bonds. The 1 billion yuan (about 63 billion KZT) bonds were also listedon the Hong Kong exchange for institutional investors. All proceeds will be used to finance “Belt and Road” initiative infrastructure projects and projects in Kazakhstan.
The yuan was chosen for a few reasons. Firstly, Chinese investors may only invest in yuan. Secondly, bank financing to implement Kazakh-Chinese projectsis more profitable in yuan due to currency conversion and mutual settlement savings. In addition, yuan-denominated bonds will expand the choiceof financial products for domestic and foreign investors to diversify their investment portfolios.
We still have a long way to go to unlock the potential of not only Chinese, but foreign investment in Kazakhstan as a whole. However, to aid this process, we clearly need to continue with the Privatisation Programme, and non-state companies also need to begin raising equity through the stock exchange to “rock” the interest and demand of global investors.
- Thank you for the interview.
June, 2020
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