AIX CEO Tim BENNETT:
IT IS NECESSARY TO SHOW SUCCESS STORY IN KAZAKHSTAN IN ORDER TO ATTRACT OTHER COUNTRIES AND COMPANIES TO AIX
A year ago Kazakhstan’s First President Nursultan Nazarbayev solemnly unveiled the first trading session on Astana International Exchange (AIX). The trading platform was designed as a platform for the countries of the Central Asian region to allow companies to attract foreign investment from around the world. AIX CEO Tim BENNETT talked in an interview with Interfax-Kazakhstan on how the work on attracting participants from the other countries is ongoing, what the advantage of Kazakhstan’s exchange over the LSE platform, what the future for green and Islamic finance is like.
- Kazakhstan’s authorities have repeatedly stated that the Astana International Financial Centre (AIFC) and AIX will be a regional platform for attracting investments and other financial transactions. In September you said that AIX is ready to provide its platform to Uzbek companies to attract investments. What progress is available in this aspect?
- Here are a few things to take into consideration. Yes, our platform is designed for the entire region because investors from London are also equally interested in Uzbek companies, and brokers want to provide them with trading services and sell Uzbek securities. But we must understand, one and a half - two years ago, there were no private companies in this country as such, everything was kept in state ownership. Their privatization program for both state-owned assets and assets owned by business should reach a certain stage of development. It will take them time to reach the level of Kazakhstani companies.
Another important distinguishing feature is that we do not just invite Uzbek companies to raise capital on the AIX platform but offer to work together with them. This will give Uzbekistan access to investors in global markets. We have built a working platform in Kazakhstan, however, unlike the LSE, where issuers must play by its rules, use its brokers and its services, we offer other terms and conditions. This may be a small batch of Uzbek companies, which can use their brokers, bankers, their service providers, and we will provide a platform with access to international investors. We do not say that we are better, we simply voice our proposal.
- Is there interest in AIX on the part of the other Central Asian countries?
- We are negotiating with officials from Uzbekistan and, in principle, similar deliberations and discussions are ongoing with the other countries in the region. However, Kazakhstan and Uzbekistan are a large part of the Central Asian economies. Therefore, our goal in Kazakhstan is to launch and put the process on track. We also want to start such process in Uzbekistan as well. But in order to attract states and companies, it is necessary to show a success story. This is the best attraction strategy, so we are now focused on showcasing our success in Kazakhstan.
- Are there any plans or expectations on listing new companies on the exchange, excluding those who have to be floated as part of the state privatization program? How many companies are approaching you, ready to consider your platform for their offerings?
- In general, there are many such companies. We work very hard. But it is necessary to understand that as an exchange, we do not take such decisions on behalf of companies. They have to consider factors such as the right time for listing, the price that investors are willing to pay, and whether there is, in principle, interest on the part of investors. There are companies, which were very attractive 12 months ago but now they are void of interest. This happens not only in Kazakhstan, but around the world. Aspects such as trade wars have an impact on that, you know, China sets prices for raw materials. The recession is also expected in 2020, so these factors need to be taken into consideration.
I underscore once again that we are operating, we are open and, so to speak, in the full-scale operational phase and for several months we have been showing good indicators in terms of integrated capital market development in Kazakhstan, where both domestic and foreign investors are present.
Returning to the so-called market conditions, which are the factors that determine many decisions, then these are trade wars, interest rates, recession, commodity prices, tourism - they determine the needs, whether there is any interest in these companies and the need to enter the capital market.
AIX is only one year old. Most platforms in the world are 25, 50, 100 years old. My experience in developing markets shows that we need to arm ourselves with patience. Yes, one can judge us by annual results but still it is better to focus on 4-5 year results, because I see a huge interest in Kazakhstan in the five-year term on the part of foreign investors. Wherever I travel across Kazakhstan, I always see a huge potential to use this capital for development. We have the main base ingredients, it is necessary just to put them together.
- Also, AIX was designed as a platform for attracting the Belt and Road project investments. Can you talk through this initiative?
- We see more and more that investors have an interest either in concrete projects or in projects sectors. We saw this with regard to Islamic securities and green finance as well. These are those projects and businesses that meet a certain list of criteria. Similarly, we devised a list of criteria for the Belt and Road Initiative in order to define whether this company or project is part of the initiative. We also worked out an analysis process to check whether a company or a project meets the criteria. In particular, these are projects to be implemented in Kazakhstan, the Central Asian countries and other states as part of the Belt and Road Initiative, the Nurly Jol program, privatization and infrastructure projects, as well as initiatives within the China-Kazakhstan production capacity cooperation fund framework.
When investors, whether Chinese ones or from other countries, are interested in participating in projects related to the Belt and Road Initiative, we tell them: “Here is our list of projects or companies that meet the criteria of the initiative, choose”.
- How do you assess the AIFC readiness and the system as a whole for Islamic and green finance?
- I know that the AIFC carried out meticulous work on devising criteria for Islamic securities and green finance. I also know that the green finance team is working on projects and businesses, which comply with green finance principles. We are also in talks with investors who are interested in eco-projects. However, such projects require certain time to reach a certain stage of development. Not every day, someone decides to build $ 500 million worth of wind farm or invest in building a school, according to Sharia canons. Therefore, here we say that the development of such projects takes time.
- How do you assess the prospects for natural development of Islamic and green finance in Kazakhstan? It is no secret that the Kazakh government is making every effort to ensure the green economy and Islamic finance take hold in the country, and sometimes there is a feeling that this is being done too vigorously?
- I do not quite agree with you. These are projects that imply the availability of signs of green economy or energy, as well as compliance with Sharia canons. Therefore, a large independent investor is unlikely to be found, who would come in and say that he is ready to invest $ 1.5 billion in the construction of a wind farm. More often the government will be 100% or 50%-source. That is, development and investment in this infrastructure will come from either the government or government entities. In general, the portfolio of such projects will be initiated on their part.
But this is good, because there is simply the staggering demand on the part of investors for both green projects and, though a little bit less, for Islamic projects. Therefore, if the government wants to raise capital for the development of the country, it should reckon current trends and what is of interest to the investor. Since Islamic and green investors also represent a very large pool, their interests must be taken into consideration.
- In October AIX jointly with Renaissance Capital, organized a series of meetings of Kazakh companies with investors in London. Tell us how these meetings went?
- As many as 10 Kazakhstani companies attended, which met with 23 various management funds. The Kazakhstani companies represented various sectors - these were entities included in the privatization program, such as KazMunayGas, Kazakhtelecom and Air Astana, and large financial companies, such as Halyk Bank, and small businesses. There were also companies, which are not listed but considering such prospects and they were satisfied with the level of interest from the management funds. There were nearly 100 face-to-face meetings; they met with management companies, foundations that are interested in emerging, new markets.
- You said that your potential issuers were among the companies participating in the meetings with the investors. Would it be possible to talk through whether you are expecting offerings or for the time being is all this provisional plans?
- Companies, which plan to raise capital, begin a preparatory process two-three years in advance. The main factors that they focus on are market conditions and investors’ interest. Therefore, we cannot say specifically about dates or a timeframe.
In the past 3-6 months we have viewed situations internationally when companies were planning an IPO but after a road show with investors, they saw that there was no strong investors’ interest and decided not to go public. That is, market conditions also affect investors’ interest.
To this end it is worth mentioning that the government has repeatedly confirmed its commitment to the privatization program through the fund Samruk-Kazyna and I believe this entire process is transparent. I am sure that the program will be implemented in the coming years.
Also, as part of our event, the companies attended, which are listed on other exchanges and now examining opportunities in Kazakhstan. A large number of companies and projects in Kazakhstan is active in the oil, gas and natural resources sector and they need capital investment. Therefore, we also work with them in order to understand what the needs and interests of investors are, to help them with types of securities they could issue. That is some sort of matchmaking when we help them find a match between their expectations and investors’ needs so that both shareholders and investors understand what to expect from each other.
The project portfolio also includes Chinese investors showing their interest in the Belt and Road initiative projects. There are few such projects, because they are long-term, predominantly infrastructure and resources. Also, Chinese investors mainly consider the local currency and Chinese Yuan.
And the last thing, it is worth noting that we started from scratch. There was no significant market here for debt financing, capital investment, the local market was illiquid. Therefore, it will take a certain number of years to build up an investor base, and the London event was quite successful to this end. It is also necessary to update a local, domestic investors' database, of course, give our investors confidence that there will be bidding, that the price will reflect the real value, the company cost.
- What investment funds took part in the meetings with Kazakhstan’s companies?
- Mostly these were companies from the UK and based in Europe. Representatives of the funds were persons specializing in investments in the emerging and Eastern European markets, including Kazakhstan. Their current investment volume nears $ 30- $ 40 billion.
Now we are working to develop the marketplace. When we were beginning 18 months ago, we had nothing. Now we need to create some sort of market and therefore we need both sellers and buyers. The more sellers we have, the more buyers will be, and the more buyers we have, the more sellers we will have. And this marketplace develops in this way - company by company, investor by investor, issuer by issuer. But we need a platform where everyone will get together, both domestic and foreign investors. Now we are working to develop the integrated platform.
The meetings of Kazakhstani companies with investors in London were very successful. However anyway we measure success in dollars or in attracted investments, and it takes months and years to take such decisions, so now we say that the event was successful, but prospects will tell.
In general, feedback has been received from companies and investors who say they would like to participate again in such an event. Therefore, we are examining the possibility of holding such an event next year in London, as well as, possibly, in New York, and we see a certain demand from Asia. Therefore, we are discussing the possibility of holding such an event in 2020 with some of our brokers.
- Thank you for the interview!
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