In the end of May “Corporate finances” forum took place in Almaty, during which its participants discussed a lot of essential issues. Prospects of attracting by domestic companies of external loans, and possible consequences of creating a Uniform savings pension fund, and impact of the Customs Union on competitiveness of Kazakhstan business, and the situation in the innovation sphere.
The organizer of the event, which was in the format of panel discussions, was traditionally VIPromotion company. Both representatives of domestic business-community, and heads of development institutions took part in it.
First of all they tried to assess the investment potential of Kazakhstan and came to an unanimous opinion that in the industry, the oil and gas sector still represents the highest attractiveness for investors.
Speaking about regions, Almaty leads among them leaving others far behind. According to the research of Expert RA Kazakhstan, preliminary results of which the director of this rating agency Adil Mamazhanov presented, Atyrau oblast follows the southern capital, and Astana takes only the third place. At the same time less attractive from the investment point of view he called North Kazakhstan, Zhambyl and Kyzylorda oblasts. Regarding the regional gradation by the degree of risks, less risky for investments the expert assumes again Almaty, whereas North Kazakhstan oblast closes this list.
Answering the question of the session moderator, the general director of media-holding Business Resource Oleg He, about whether plans of the Ministry of finance on placement of sovereign Eurobonds can "open access" to private players to global markets of the loan capital, Mr. Mamazhanov marked that for the last 2–3 years several large placements of national companies was carried out, and therefore “the way is already open”. Issue of state Eurobonds will only strengthen this trend. “Of course, it will be a benchmark. For this purpose placement is planned. This will help national companies to adjust their policy on capital attraction more clearly. And finally, it will open up additional opportunities for private business. However, in my opinion, there are not a lot of them.”
DIF gathers pace
Afterwards when the participants had discussed prospects of external borrowings by quasi-state companies, the moderator of the discussion focused the attention on opportunities of the Kazakhstan direct investments market, noticing that here also the state plays a significant role through the fund of funds Kazyna Capital Management. Therefore his address to the managing director of this company Alexey Ten with the request to comment on the current market situation and the KCM operating results was quite logical.
“Last year was symbolic for us. We witnessed revival on this market. Out of ten our direct investments funds seven is working in Kazakhstan, taking minimum 80% of the whole market, as there is only one-two funds on it, which do not relate to us”, – in that a way Mr. Ten commented on a high concentration in the DIF segment.
At the same time, stating the increase of the state impact, he noted emerging on the market of one more player – National investment corporation of the National Bank. “Mostly it deals with management of its assets and intends to work mainly on the direct investments market. But they still have not designated their mandate: whether they will be represented in Kazakhstan, or it will be other countries. Though judging by the short timeframes, within which the corporation was established and started to operate, – I should say that their tasks are ambitious”.
Speaking about initiatives from the part of the private sector, he said plans of RESMI group as an example, which had already developped the internal infrastructure, employed specialists and is ready to enter the domestic DIF market.
As for the results of Kazyna Capital Management activity, it seems the fund is doing well. Only last year its portfolio increased at 3 times. According to Mr. Ten, it happened owing to transactions in such sectors of economy as logistics, energy, agriculture and medicine.
He also said that at the moment KCM funded 99 projects for the amount $146 mln. Totally 332 projects were considered, but 233 of them were declined. This is due to the fact that the funds, as a rule, do not churn out their projects, but study them, taking into account of all risks. “At the same time the funds do not take any pledges, and a decision on support is made only after a thorough analysis”.
The speaker as another reason of a big number of declined applications called discrepancy of many companies with the requirements of funds in respect of disclosing of all financial flows, structures of shareholders or contratcs. “But there is improvement, because the companies clearly understand that they cannot work so badly hard or not so hard for a long time. If they want to grow further, they will have to disclose.
He considers a high level of high debt ratio of the private business, as the factor, which positively effects the growth rate of the DIF market. “Banks understand very well that there is no use to lend many companies, because they are overloaded, and shareholders themselves do not take any part in solving the issue of how to work further. Meanwhile STB always call upon borrowers: “Either your shareholders must increase the capital, or you should attract investors”. Here opportunities for direct investments funds open up”.
The clarifying question of the moderator about what part of funds was drawn by the KCM for funding various projects, Mr. Ten called quite a modest figure, though he assured that it would increase. “At present we have drawn approximately 25% of the portfolio. But we want to keep the growth rate, which was in 2012. And if last year we funded the projects for $100 mln, then according to the development plan for this year we laid the same figure”.
Speaking about free cash resources of the company, he did not conceal that part of them is still placed on deposits, part – in debt securities and part – in derivatives. He did not clarify in what banks, in securities of what issuers, and in what percentage.
If summing up the said of the managing director of Kazyna Capital Management, then it turns out that on the DIF market the state plays a more significant role, and the level of competition is decreasing steadily.
By the way, the state ownership trend, the recent several years is witnessed almost in all segments of the financial market. Especially last and current years it intensified. The most symbolic events in this respect were: creation of a uniform credit bureau under control of the National Bank, the initiative of the latter on formation of a uniform processing center, as well as the intent of the state to unite all savings pension funds into the UNPF.
The latter causes a special concern from the point of view of prospects of the domestic fund market. As a number of analysts believes, it is expected that the corporate bonds market is negatively exposed by merging of pensions funds most of all. If earlier private NPF, competing between each other, ensured acceptable for issuers rate of return of their debentures, then after merging of pension assets into one “kettle” the state as a matter of fact will get a powerful leverage over the demand on this market. In that a way it will have a possibility to impact significantly on the rate of return on corporate bonds.
Considering that the UNPF will be under the state control, it is not difficult to guess securities of what issuers will be in priority of this uniform fund. Taking into account of the possibility of national companies to attract funds at the cost of Eurobonds issue, the part of the demand of the UNPF will automatically switch to buying out of Eurobonds of quasi-state institutions. As the result medium companies of the private sector will be in fact isolated from the market of corporate obligations, and will be forced to switch on attraction of STB loans. As the result for them the “corporate” segment as the alternative to bank crediting will cease to exist.
If a high debt load of many enterprises and an acute deficiency of cash resources in the real sector of the economy is added to this, then it will be quite fair to suppose that plans on establishment of the UNPF run counter to government’s strategy on diversification, and will only favor business activity in processing industries.
However some experts, to the contrary, do not tend to dramatize the situation. For instance, Adil Mamazhanov assumes that formation of the UNPF will not bring to liquidation of the fund market. “We are very closely working with pension funds. And I can say that expectations of market participants are not so pessimistic. We cannot say that the fund market will not exist. Many market participants (i.e. NPF – ed.) reasonably assume that they will have mandates for the management of pension assets, which they will be able to use on the Kazakhstan securities market. I do not think that the purpose of the pension reform was to destroy the fund market. It is categorically not allowed to do. And most likely it will not happen”.
Alexey Ten has the same opinion: “We do not have dark expectations regarding the prospects of the fund market. And the state is taking measures on reviving it somehow. Let us take as an example the program of the People’s IPO”. In the same way the debenture market is operating, and many national companies make placements on it. Therefore we may say that the fund market is living and developing. Besides it is early to speak about changes after UNPF establishment, because we do not know, what investment policy it will have”.
And again about the CU
The forum participants also discussed consequences for the Kazakhstan business from the creation of the Customs Union and Common Economic Space. Oleg He draw attention to negative changes, which occured in the trade structure of Kazakhstan with Russia and Belarussia. According to his information, after the CU creation the portion of supplies of processed products from these countries had increased.
In return the chairman advisor of National agency for export and investments KAZNEX INVEST JSC management board Saule Akhmetova called not to compare Russian and Belarussian manufacturing industry with the domestic one, as “under the Union we developped as a raw materials appendage. Therefore it should not be expected that in the Customs Union we will suppress Russians, most likely, the reverse will happen”. As she considers, under such conditions the state should help enterpreneurs, but for this purpose the business has to strive to enter foreign markets. “Any state program should push the business. But telling honestly, I should say that people do not want or they like the way they work”.
Speaking about the competitiveness, she called not to discuss about it in a large scale, but put an accent on concrete sectors, where our business could take a worthy place. “The Customs Union is a very good check of Kazakhstan enterprises for competiteveness. And first of all we have to speak not about the world competiteveness, but at first learn to compete with business from neighboring countries. And when we say that the import from these countries is growing, and the export is falling, we have to look at the quality of the latter. If before the CU creation raw materials supplies prevailed, then after its creation the processing portion is increasing. It means, we learn to export the products with a higher added value.
The Kazakhstan production, in her opinion, should be first of all oriented on the output of second-third redistribution products. At the same time our food products with a high degree of processing and also light industry commodities can adequately compete on neighboring markets.
The management board chairman of KazExportGarant JSC Yerkin Sadykov also noted the growth of the import products from Russia and Belarussia as a negative one. A positive moment he considers that owing to the CU Kazakhstan today can fulfill about 75% of obligations, which the countries raise when entering WTO.
Pluses and minuses for business
The vice-president of Kazakhstan industry development institute Seitgali Galiyev presented the results of research of conditions for business prospects in Kazakhstan, held by the European Commission. The pluses he called a favorable tax regime, as the tax base in the Republic is “one of the lowest among CIS countries and the world”.
The second plus is presence of a favorable licensing system. “Last years the quantity of licensing documents reduced almost twice, owing to which it is much easier to open a business”.
Another positive moment can be considered the fact that among other CIS countries Kazakhstan has a higher level of profitability and the volume of resources per one business entity. “Seemingly there are all conditions, owing to which small and medium business should prosper, but we do not observe this, and SMB does not experience it”, – the vice-president of the KIDI underlined.
At the same time he tried to explain, why it happens like this, referring also to the information of the European Commision. As it appeared, the answer lies on the surface. All positive preconditions for business are levelled by negative factors, the core of which the speaker called “a weak information, innovation, managerial and banking infrastructure”. The second problem is a high level of corruption. Enterprises “frequently face that akimats at a different level charge them with additional functions: beginning from holding events to frankly corruption things”.
One more negative precondition according to Mr. Galiyev, remains complications during business closing. “There exists a whole chain of diverse verifications, and no efficient mechanism on bankruptcy of an enterprise”.
The last barrier is high penalties, which bring to decrease of activity and optimism of businessmen. Consequently, not high turnovers and investments in small and medium business are observed. Mr. Galiyev referred to the results of the technological audit of medium and big companies, which was held by the KIDI in 2010. It turned out that only 13% of all enterprises, where the audit was held, are able to hold upgrading. The rest “due to different reasons, including those related to financial insolvency and own technological opportunities”, are not ready for it.
In detail the KIDI vice-president dwelled on the situation in the innovation sphere, where still the deficit of projects is observed. Whereas even at the legislative level there is no clear understanding of what should be understood under innovations. As the expert considers, many projects, which today have the status of innovations, in reality do not.
Besides Kazakhstan has a very low index of innovation-active enterprises – totally 5,7%, when in the world it amounts to 60–70%. “Recent years we add annually 0,3–0,4%. Therefore we can imagine that in several years we will come to the world level at such paces.
Partially it is explained by the unwillingness of foreign investors to introduce innovations due to high risks, which exist in Kazakhstan. According to Mr. Galiyev the structure of direct foreign investments does not favor diversification and transfer of knowledge. DFI operate only in the process of creation of enterprises, but absolutely do not operate at the level of technologies improvement, and particularly during introduction of innovation ideas.
The result of all these factors was that today in Kazakhstan out of 100 innovations only 1 is introduced into production, while in other countries this indicator is about 30.
Notably is that development institutes do not favor the innovation breakthrough. At least such conclusion can be made upon the statement of the managing director of National agency for technological development JSC Gulnara Yessengazina, who said that in early 2012 the NATD did not give any innovation grant.
As a remakr lets us note that against this background the desicion of creation of a national holding for management of all development institutes “Baiterek” is quite logical. And still efficiency of a newly-fledged entity even before its start causes a certain scepsis.