Speech by Deputy Chairman of «Samruk-Kazyna» JSC Kuandyk Bishimbayev at section “Equity market: World of IPO”
“Doing People’s IPO in Kazakhstan”
Dear fellow speakers, dear guests of the Forum, on behalf of Samruk-Kazyna Fund I thank you all for participating in this section.
The People’s IPO program is managed by Samruk-Kazyna and I think today is an excellent opportunity for us to brief you on it and get your feedback and advices.
The initiative of the People’s IPO program was driven by President of the Republic of Kazakhstan Mr. Nursultan Nazarbayev in February 2011. The idea is to attract population to the local stock market through providing opportunity to buy shares of large national companies on equitable and fair basis.
We saw many examples of IPOs around the World with large retail investors’ participation and all of them had unique approaches and results were quite different. For example:
In countries like Italy, Germany and Malaysia results were quite impressive. IPOs of state-owned companies attracted large equity capital needed to finance expansion and resulted in higher population’s activity on stock market, although some investments brought losses to retail investors.
In Russia, three IPOs were heavily marketed among population, but failure to warn non-professional investors about risks led to negative perception once share prices were hit by the crisis.
China made few IPOs with retail participation, which were successful in terms of raising equity capital; however, one of the problems was that people used borrowed funds to buy shares, which clearly increased their risks even more.
Those and some other examples showed that two IPOs in same country could have quite different results and no ready-to-use solution exists, which could be applied to our program directly. Therefore, we used all available experience to design our program that would address both social and economic goals: providing opportunity for citizens to increase welfare by investing in stocks and facilitating growth of national companies’ market value.
In Kazakhstan, we’ve just started the implementation phase of People’s IPO program. The program is planned for 2012-2015 and it’s rather too early to make conclusions, so I will mainly focus on features of our program.
Before Samruk-Kazyna got started with the actual implementation of the People’s IPO program, we did a preparatory work, where we analyzed current situation first, then defined areas for ground works and only after that began with implementation.
Together with international advisors we reviewed current situation with legislation, level of population’s financial literacy, retail investor demand, infrastructure readiness and analysis of the companies that should be addressed in the People’s IPO program. The findings of that analysis were used to resolve issues that prohibited doing IPOs of the strategic companies and to allow using best practices during IPOs.
Before I move to how we implement the People’s IPO program, let me give you the key principles and approaches that were chosen:
· The placement of shares will be on Kazakhstan stock exchange only – after that we might consider listing those companies on international stock exchanges;
· Only citizens of Kazakhstan and local pension funds are allowed to purchase shares during the IPO. This restriction is used to provide maximum opportunity for citizens in getting exposure to shares;
· IPOs will be made with minority stakes of no more than 15%. The majority of companies included in the Program play strategic role in most of the sectors and Government will preserve control in the companies;
· This is going to be pure IPO, where new shares will be issued and proceeds from the IPO will used to finance companies’ investment programs;
· Given that we want to assure equitable and fair access to the shares, there will be a limit on maximum shares that a retail investor can buy through IPO.
Based on our goals, when implementing People’s IPO program we concentrate on two major areas – getting population ready for investing in stocks and making sure that companies are well prepared for IPO and being public. We see following challenges in dealing with these tasks:
· We offer a relatively complex instrument to a large number of non-professional investors;
· The majority of the population is located in rural areas, therefore, more efforts needed to inform them properly and provide access to the stock market;
· The share price should be affordable for everyone but at the same time we want people take it seriously, when making decision to buy shares;
· We offer shares of large national companies, but most of them are regulated and require constant improvement of tariff policy and regulatory environment;
· Corporate governance in companies will have to make sure that minority shareholders are not hurt; on the other hand, Government should preserve ability to solve strategic objectives through national companies.
As you can see, our approaches focus equally on both social and economic parts of retail IPOs and here is what we do:
· We run informational campaign that is designed to increase awareness about Program among population even in rural regions and to inform that shares provide higher return but at higher risk. Everyone should know that there is no guarantee;
· Education is an ongoing process. We have to make sure that our citizens make informed decisions, know their rights once they become shareholder, understand how they can get return and when should they buy or sell shares;
· To reach everyone in the country we will use network of the post service company Kazpost, which will provide transfer agent or brokerage services in every city and rural areas;
· To minimize volatility of the share price, which could hurt beginners, we selected the most stable companies first. By stable I mean companies that are not significantly dependent from international commodity markets. By offering shares of stable companies first, we provide a transition period when beginners can learn basic skills of an equity investor;
· The other side of stability of those companies – is that they are monopolists or dominants and their activity is regulated. We will work on regulatory reforms that will allow successful IPOs and minimize regulatory risks going forward;
· We are not pursuing maximization of proceeds from IPOs. The price will be set at market level, but it will include some upside for investors;
· Although the listing requirements of Kazakhstan stock exchange are much less strict than those on international markets, we chose higher standards of preparing to and running the IPO, we relied on requirements of primary market on London stock exchange. We believe that in spite that we do a local listing only, preparations based on the best practice and full disclosure will help minimizing risks for citizens and benefit companies through higher liquidity brought by international investors on the secondary market.
The compliance with best practice is procured by the team of advisors with large international experience. The advisory team consists of international and local investment banks, legal counsel, reporting accountant, technical expert and PR advisor. Each team works closely with companies to put together prospectus that will disclose all the required information as well as to provide a proper roadshow, presentations and communications in general.
Starting from September 2011, companies from the list began their preparations and we expect the first company to go public in September this year. That is planned to be national oil pipeline operator – KazTransOil. During next years we have few other companies that will be listed on KASE:
· KEGOC – national electric power transmission company;
· KazTransGas – largest natural gas transportation and distribution company;
· Samruk-Energo – integrated holding company owning electric power generation and distributions assets as well as coal production;
· Kazmortransflot – sea shipping company;
· Air Astana – national air carrier;
· Kazakstan temir zholy – railroad monopoly operator;
· NC KazMunaiGaz – integrated holding company owning assets in exploration, production, refining and marketing of oil and gas;
· and KazAtomProm – rare metals and uranium producer.
As you can see we put companies from extractive sectors the last. IPOs of extractive companies is planned no earlier than 2015 and then will decide whether retail investors are ready to take risks of investing in such companies.
As I mentioned before, we launched informational campaign this year. Educating and informing every single citizen in such short period of time is a very challenging task, so we are using all possible resources to accomplish it.
Informational campaign is designed in three stages:
· First one is to stir interest among population through call-center, web-site and mass media;
· Second is to inform population about the program and how one could participate in it via conferences, meetings and mass media;
· And the last one is to give information on basic skills and information that beginner should know before investing in stock market. More specifically about possibilities that investing in shares give and what risks investor takes.
All these stages are planned to be finished by August in order to provide maximum awareness of the population about risks and opportunities that equity investment provide.
Dear speakers and participants!
We realize that this Program is not an easy task and requires enormous efforts to make a success for everyone involved. It is really hard to predict the outcome when dealing with large number of amateur investors, but we hope that our precaution measures will make People’s IPO program successful and this experience will be useful for other countries that plan undertaking the same task.
Thank you for attention!