USD/KZT 367.06  -1.95
EUR/KZT 416.17  -0.21
 KAZAKHSTAN International Business Magazine №1, 2007
 Merge and Acquire.!The M&A Market in Kazakhstan
ARCHIVE
Merge and Acquire.!The M&A Market in Kazakhstan
 
Yuliya Feller, RESMI Investment House
 
The development of economy and market inevitably entailed improvements in the investment climate in Kazakhstan. Over the recent years, merger and acquisition (M&A) transactions multiplied. In 2005, Kazakhstan’s market was estimated (according to Ernst & Young) at $9bn, compared to $0.7bn in 2004. It is necessary to mention that these high indicators were achieved due to significant transactions in the oil and gas sector. For example, CNPC purchased PetroKazakhstan for $4.2bn which accounted for 47% of the total amount of transactions in 2005.
 
According to the National Business magazine, the domestic M&A market grew to $11.3bn last year. However, this indicator comprises the initial offers and global depositary receipts (GDRs) by Kazakhstan’s companies. Our calculations show that the M&A market, excluding IPO transactions, made up approximately $9.5bn (chart 1) in 2006. Each transaction averaged $257m.
 
It should be mentioned that M&A processes in Kazakhstan stand at the beginning of their development and therefore lack transparency. That is why it is impossible to accurately estimate transactions in retail, real estate, farming and other sectors. While transparency in financial and oil and gas sectors imply the obligatory disclosure of information to regulatory bodies, the absence of regulations binding on providing data regarding other sectors of the economy makes it impossible to evaluate the quality and number of transactions. Of course, the development of M&A in retail, real estate and farming does not fall behind other sectors, so it is quite easy to assume that these sectors have more transactions than financial or oil and gas sectors because the former are divided into a larger number of fragments. However, it is necessary to remember that the majority of the participants in these sectors are small and middle-sized businesses, which means smaller transactions. As a rule, these transactions are carried out without third party involvement, and the investment objects are private companies, which also impacts on the availability of data.
 
The financial sector retains its position as the most attractive segment both for domestic and foreign investments. Kazakh banks, who carry out the largest transactions, are the most significant participants in the market.
 
The expansion of domestic financial institutes to the foreign markets became more intense in 2006. For example, Bank TuranAlem purchased a 33.98% stake in the Turkish Serkerbank T.A.S., which ranks 17th among 47 Turkish banks in terms of its size. As a result of this $256m transaction, Bank TuranAlem can now offer its services in nine countries.
 
Talking about the home market, foreign investors’ purchases of Texakabank and Bank Caspian can be considered as the largest transactions. Experts estimate that the transaction between Russian Sberbank and Texakabank ranges from $85-105m. As for Bank Caspian, the management announced selling a considerable share to Baring Vostok Capital Partners investment fund, which specialises in the management of direct investments. Taking into account the fact that both banks have well-organised networks of representative offices, these transactions indicate the growing interest towards bank retail services in Kazakhstan. This trend is also approved by foreign banks which traditionally worked with corporate clients and are now beginning to develop their retail services in the home market. If 5-7 years ago the major goal of our banks was to provide services to key corporate clients, now financial institutes are diversifying their activities by paying more attention to retail services, so that they reduce risk and acknowledge that this sector is quite promising.
 
Bank TuranAlem sold 7.71% of its ordinary shares for €136.5m which became the next large transaction. A consortium, headed by the Sweden investment group East Capital, acted as buyer and Raiffeisen International Austrian bank acted as seller. In 2006, Bank Pozitif Ve Kalkinma Bankasi Anonim Sirketi (Turkey) purchased Demir Kazakhstan Bank for $24m from Bank Hapoalim (Israel).
 
Foreign investors’ interest in large domestic banks shows that the domestic market of bank and finance services has entered the new level of development. Today the Kazakh finance institutions aim at the accumulation of own funds and development of their internal structures, taking international practice into consideration. The large investment banks of Russia also show their interest in Kazakhstan’s finance market. Russian broker company CIT Finance has begun its activity in Kazakhstan. Troika Dialogue, Renaissance Capital and Aton also announced their plans to enter the market.
 
It should be mentioned that the forecast regarding the possibility of Kazakh banks consolidation came true. This is evidenced by Bank TuranAlem’s purchase of Temirbank, another domestic bank. The consolidation trends are seen in other fields, for example in the insurance sector, where acquisition transactions were recorded as well.
 
Therefore, it is obvious that the financial institutions of Kazakhstan, particularly the second-tier banks, are the key participants in the Kazakhstan’s M&A market today. We can expect that the number of transactions in the financial sector will grow in the near future.
 
The oil and gas complex is another sector which traditionally accounts for a considerable part of the M&A market in Kazakhstan. These transactions are much larger and are tightly controlled by the government.
 
China’s CITIC Group’s purchase of Nations Energy, the oil producing company of Canada and the principal shareholder of Karazhanbasmunai, was in the limelight in 2006. Kazakhstan’s national oil and gas company KazMunaiGaz, was offered the purchase of a 50% stake in Nations Energy at $955m — half of the amount of the transaction between Nations Energy and CITIC Group — in order to make the regulatory bodies of Kazakhstan to approve the transaction. This step was a continuation of the Chinese expansion in Kazakh oil and gas sector which started in 2005.
 
In 2006, KazMunaiGaz and CNPC signed a purchase agreement which defined the terms of KazMunaiGaz’ purchase of a 50% share in Valsera Holding BV, the parent company of PetroKazakhstan Oil Products. This document complies with the agreements previously attained by the companies during KazMunaiGaz’ purchase of a 33% share in PetroKazakhstan.
 
Last year, domestic oil and gas and energy companies invested heavily in foreign markets apart from their investments in the domestic market. For example, KazTransGaz purchased a 96% stake at $12.5m in Tbilgaz, a Georgian gas distributor. In addition, KazTransGaz undertook obligations to repay part of Tbilgaz’ debts.
 
Mining and metallurgy. When talking about transactions in this sector of the economy, it should be mentioned that gold producers account for the majority. The Russian Copper Company sold Maikainzoloto; meanwhile KazakhGold Group jointly with Oxus Gold (United Kingdom), purchased a gold producing project and Explorer SA in Romania. In general, the transactions were aimed at acquiring additional natural resources and production facilities.
 
The telecommunications sector has just a few major players and is monopolised by the national operator Kazakhtelecom. In 2006, this company was the main participant in the M&A market with its purchase of a 100% stake in the authorised capital of Mobile Telecom Service, 50% in Altel and 54% in Nursat for a total amount of $220m. All these transactions further consolidated Kazakhtelecom’s position.
 
The M&A distribution by sectors in 2006 (chart 2) shows that oil and gas transactions account for the major part of the M&A market. However, we already mentioned that this situation was due to the large amounts of funds, which is normal for this sector. Therefore, the three largest oil and gas transactions totalled $6.7bn and accounted for 70.7% of the M&A market. The distribution of M&A transactions by sectors would be quite different (chart 3) without these oil and gas transactions.
 
Chart 4 shows M&A sectors by the number of transactions. A total of 37 transactions were made in 2006, the majority of which were reported in the finance sector followed by the mining and metallurgical sector. It is noteworthy that the oil and gas sector reported merely six transactions or 16.2% of the total number of transactions in 2006, compared to its 83% share in the M&A market in terms of money.
 
Therefore, the following conclusions can be made.
• The M&A market is marked by the lack of transparency and precise information, which can be explained by owners’ reluctance to disclose information. The finance, oil and gas and mining sectors are the exception.
• Consolidation was mainly seen in finance (as it dynamically develops) and oil and gas (due to stable and high prices for oil and increased production).
• The majority of direct foreign investments were aimed at oil and gas sector in 2006.
 
Our forecast for 2007 is that we believe that the M&A market will develop further.
 
First, the overall economic growth will result in the accumulation of funds in leading economic sectors and entail the growth of direct investments made by companies involved in these sectors.
 
Second, the development and consolidation of markets and the growth of competition will foster companies to re-consider their positions and do their strategic planning more thoroughly.
 
The finance (excluding bank) and mining sectors of the economy are expected to report the largest number of M&A transactions this year. The retail and service markets, which undergo a phase of rapid growth, will be the most promising in terms of M&A processes.
 


Table of contents
World Investment: Another Year of FDI Growth  Global investment overview 
Stock Market: Insights  Sholpan Aynabayeva 
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3





Rambler's
Top100
Rambler's Top100

  WMC     Baurzhan   Oil_Gas_ITE   Mediasystem