Mergers and acquisitions: positive attitudes
Ms. Aygerim Butabaeva, Head of Financial expertise and Consulting Division of the Investment Banking Department of JSC “Investment Financial House “RESMI”
In the post-crisis period companies resistant to market volatility have the opportunity to expand their businesses through mergers and acquisitions. These trends did not pass round the Kazakhstan market as well, which in 2011 experienced the increased interest from foreign companies. At the same time, there is also an activation of the internal processes in the local market of M&A.
The total volume of M&A transactions in Kazakhstan in 2011 amounted to over $7 billion, most of which have traditionally accounted for the transactions carried out in the oil and gas ($4.4 billion) and mining ($778.1 million) sectors. At the same time it should be noted that the market’s favourite in terms of volume of transactions in the past year is the financial sector, in which continued the processes of consolidation that began as far back as in 2010. In this case the lion's share of M&A was carried out in the insurance and pension markets. This is mainly due to the tightening of regulatory requirements by the regulator, which, in our opinion, will inevitably lead to a better development of the market.
The largest transactions in the oil and gas industry were committed with the participation of JSC NC “KazMunayGas” and its subsidiary JSC Exploration Production KazMunayGas. Thus, in April 2011 KazMunayGas Exploration Production completed the acquisition of 50% of the shares in Ural Group Limited, which is the owner of 100 % stake in Ural Oil and Gas LLP which, in turn, has the right to subsoil use for exploration of hydrocarbons in the Fedorovskiy block in the West Kazakhstan region (the volume of transaction – $164.4 million). In June, NC KazMunayGas acquired 100 % stake in the authorized capital of AktauNefteServis LLP, provider of oilfield services to JSC MangistauMunayGas ($334 million). In December 2011 KazMunayGas Exploration Production made a transaction on acquisition of 100 % stakes of JSC Karpovskiy Severnyi from GasMunayOnim LLP. The acquired company has the right to subsoil use under the contract for exploration of oil, gas and condensate at the “Karpovskiy Severnyi” site in the Western Kazakhstan region ($59 million). Then, in December, “KazMunayGas” Exploration Production” has signed an agreement to buy 10 % stake in the Karachaganak project from the oil consortium, which includes BG Group Plc, Chevron Corporation, Eni S.p.A and JSC LUKOIL. The sum of the transaction, which is expected to be completed in the middle of 2012, is $3 billion.
As for the acquisitions of oil and gas assets by foreign companies, in 2011 their volume was $820 million. In March, the South Korean national oil company Korea National Oil Corporation bought 95 % of equity stake capital of Altius Holdings Inc., which owns four fields with total reserves of 56.9 million barrels, for $515 million. In September, the Chinese Petroleum Corporation MIE Holdings acquired company-subsoil user “Emir Oil” LLP for $170 million from Kazakhstan’s BMB Munay Inc. In addition, in 2011 Kazakhmys PLC, in order to concentrate on its core activities, completed the sale of its oil asset Kazakhmys Petroleum to Belgian Aman Munay Exploration BVBA ($100 million). And in December, the Dutch oil company Conwell Oil Corporation BV agreed to acquire 79 % stake in the authorized capital of “Emba Yug Neft” with the Polish Petrolinvest S.A. ($35 million). However, the conclusion of the transaction is scheduled for June 2012.
Inexhaustible demand for mineral resources from countries with fast-growth economies continue to catalyze the growth of M&A in the mining industry. In January last year, an American company Spectral Capital Corporation acquired from the Kazakhstan’s JSC Gold-mining enterprise Khan-Tengry Goldberg (exploration of placer gold deposits in the Bayankol river basin in Southern Kazakhstan) 65 % of Bayankol gold deposit through the issuance of 5 million warrants totaling $17.5 million and granting the right to receive royalties in the amount of 1 %. Fortis Mining acquired the rights to two potash deposits in Western Kazakhstan for $41 million. In April, the British Frontier Mining Ltd has entered into an agreement with the Kazakh company Coville Intercorp Ltd to acquire 50 % of Benkalinskoe copper deposit in the Aktobe region and 100 % of Maminskoe gold deposit (Russia) amounting to $82 million. In September the British gold mining company Hambledon Mining Plc has signed an agreement with Mr. Erkin Sadykov and Central Asia Gold AB (U.S.) to purchase Akmola-Gold LLP which has two fields with total resources of 440,000 ounces of gold (exclusively of silver and other metal impurities) for $5 million. Now this transaction is being coordinated with the authorized governmental body. Finally, in October 2011 ENRC, in order to maintain a low cost activity of the group, announced the intention to implement its option to intracorporate acquisition of 75 % stake in JSC “Shubarkol Komir” from the JSC “Eurasian Industrial Company”. This transaction totalling $650 million was completed in April present year.
If we talk about the communications industry, in 2011 there was entered the only major deal to the amount of $1.52 billion. The Swedish telecom company TeliaSonera AB in December agreed with JSC Kazakhtelecom the conditions of purchase 49 % of GSM Kazakhstan, which provides mobile services under the brand Kcell. The transaction was completed in February of this year.
In the financial sector of the country, as noted above, was held the largest number of M&A transactions. In this case the acquiring party, as a rule, were Kazakhstan’s investors. Unfortunately, because of non-public character of a number of companies the information about the cost of transactions is confidential.
In the lending sector two transactions were carried out. So, in February, Eurasian leasing LLP has acquired 100 % stake in the Microcredit organization ProstoKredit LLP from the one of the leading European banking group Societe Generale Group, and in October Mr. Talgat Abguzhinov purchased stakes of JSC Zaman Bank from the Alan-A LLP. Three deals can be noted in the insurance sector. In the first quarter of 2011 JSC Insurance company Alliance Policy has acquired 9.5 % of the shares in JSC Insurance company Pana Insurance. In November, a former top manager of JSC Insurance Company Allianz Kazakhstan Mrs. Zhanar Kaliyeva bought 100 % of the shares in this company from the German Allianz SE. The same month, a private investor Mr. Kenes Rakishev bought 100 % of the shares in JSC Insurance company Astana Finance from the Astana Finance.
Four transactions were effected at a time in the pension sector. So, in April last year JSC Eurasian Financial Company sold 100 % stake of JSC Eurasian Pension Savings Fund to the consortium of investors (including JSC CAPEC), and in August this Pension Savings Fund merged with the JSC Pension Savings Fund Amanat Kazakhstan. In May 2011, BTA Bank bought by 25 % of the shares in JSC Pension Savings Fund Ular Umit and JSC OEIMPA Zhetysu from a corporate investment fund of risk investment CAPEC-Invest, bringing their stake in both companies up to 100 %. At the same time stakeholders of JSC “Pension Savings Fund Ular Umit, Pension Savings Fund BTA Kazakhstan and OEIMPA Zhetysu took a decision together about staged merger of the latter two companies to the JSC Pension Savings Fund Ular Umit. In September 2011 the RESMI Group of Companies announced the sale of a 100 % stake of Pension Savings Fund “Republic” to a group of private investors. The deal was completed in January 2012. And in October, the National Bank of RK bought 9.99 % stakes of JSC Pension Savings Fund State Pension Savings Fund” from the European Bank for Reconstruction and Development, bringing its stake in the fund to 100 %. Currently, however, the National Bank plans to withdraw from the equity of JSC Pension Savings Fund State Pension Savings Fund: the official tender will be announced this year.
The total volume of transactions conducted in the transport and logistics industry of Kazakhstan in 2011 amounted to $155.73 million, in particular, in April, Venus Airport Investements BV (incorporated in the Netherlands) has acquired 100 % of the shares in the JSC Almaty International Airport for $87.73 million from the SAT Infosystems LLP and Meridian Capital LLP. And in March, the Russian logistics company Trans Container entered into an agreement with the HELME'S Operation UK Limited and Logistic Investment S.A.R.L. to purchase 67 % of the shares in JSC Kedentransservice. This transaction was completed in March 2012.
In the engineering sector only one transaction was carried out in the past year – Maintenance corporation Kamkor LLP (a subsidiary of Sovereign Welfare Fund Samruk Kazyna) has acquired 50.82 % of the shares in the largest machine-building plant in Kazakhstan – JSC Vostokmashzavod (Ust-Kamenogorsk). The amount of the transaction was not disclosed. Meanwhile, in November JSC NC Kazakstan Temir Zholy and Russian JSC Scientific and Production Corporation Uralvagonzavod signed the agreement of intent to acquire the shares in JSC Vostokmashzavod and stake in the Kazakhstan car manufacturing company (Ekibastuz). According to the entered engagements, transaction costs will be determined after a comprehensive financial and legal review of enterprises and a valid assessment of their market value.
Two deals were closed in the pharmaceutical industry, the objects were JSC Khimfarm and Khimfarm-Astana LLP. So, in August 2011 JSC Khimfarm has sold 100 % of equity stake in Khimfarm-Astana LLP to a private investor Mr. Churmanov Malik (the amount of transaction was not disclosed). And in September, the stakeholders of JSC Khimfarm sold 96.26 % of their shares to the Polish pharmaceutical company Polpharma SA, implementing a strategy to increase their market stake in Eastern Europe and Central Asia. The total amount of transaction was $67.45 million.
M&A in the food industry were presented by three transactions, the amounts of two of which are unknown. In April, the Russian group EFCO, specializing in the manufacture and storage of agricultural products and trade of food products, has acquired 100 % of the shares in JSC Eurasian Foods Corporation with the brand “3 Wishes” for $25 million. In February JSC Bayan Sulu has announced the sale of 100 % stake in the PrimAgroProdukt LLP. In addition, last year the company Oasis, combining plants for the production of beverages in Russia, Belarus and Kazakhstan, has closed a deal to acquire 25 % stake of Kazakhstan’s First brewing plant LLP, one of the oldest breweries of the Republic.
In conclusion, we would like to add that in 2012, in our opinion, the interest in Kazakhstan's oil and gas and mining assets from both external and domestic investors will remain. In addition, there are processes of consolidation in the financial and agricultural sectors, electrical power and transport and logistics industries, which suggest that the quantity and cost parameters of M&A market in Kazakhstan will continue to grow.