Kazakh Resource Companies: Eyeing Share Offerings in Hong Kong

Hong Kong the “obvious” choice. Kazakhstan-focused companies are joining their international peers in seeking share offering in Hong Kong. In our view, this development is natural given the recent trend in Kazakh-China relations. The geographic proximity, strategic partnership and economic potential of the two nations offer win-win opportunities for both sides. Kazakhstan is rich in mineral resources and China desperately needs them to secure supply for domestic consumption. Kazakhstan-focused resource companies are seeking alternative sources of capital to finance their projects after losing faith in the traditional western markets, while China has tremendous cash reserves and is in search of ways to better diversify it. Therefore, China is in a strong position to increase exposure to the Central Asia’s largest economy and it is in Kazakhstan’s best interest to have Asia’s largest economy as a partner, especially in the current period of financial system turmoil in advanced western economies. The South China Morning Post quoted Kazakhstan Prime Minister Karim Masimov on October 16 as saying, “Hong Kong is the obvious destination for Kazakhstan, because most of our export products go to China”.

Major resource companies to launch share offerings in Hong Kong. Kazakhstan’s “national champions”, such as ENRC and Kazakhmys, may become the first Kazakh companies to launch share offerings in Hong Kong. The two FTSE-100 members are seeking to benefit from the liquidity the Asian stock market offers and to diversify their investor base. Samruk-Kazyna, the nation’s sovereign wealth fund, may sell stakes in certain companies it holds, with some possibly listing in Hong Kong. The fund controls Kazakhstan’s largest state-owned companies including Kazakhtelecom, the telecommunications services provider, Kazatomprom, the uranium miner, Kazakhstan Temir Zholy, the railways operator, and Air Astana, the national airline. Establishing Funds with CITIC and Hong Kong Investors. Chinese loans and investments in Kazakhstan have been mainly aimed at the rich resources sector, but interest from mainland China and Hong Kong investors has also begun to turn to other sectors as well. Kazyna Capital Management (KCM), a subsidiary of Samruk-Kazyna, has set up a joint investment fund with CITIC Group. Both companies equally invested US$100mn in the CITIC–Kazyna Investment Fund. CITIC and KCM plan to set up two additional private equity funds with approximate US$400mn capitalizations each within 5 years to increase assets under management to US$1bn. Along with CITIC, KCM has joined with Hong Kong-based billionaires, including Larry Yung, former Chairman of CITIC Pacific., Cheng Yu Tung, Chairman of New World Development Co., Li Ka-shing, Chairman of Hutchison Whampoa and Cheung Kong Holdings, and Dominic Lau, to establish a US$400mn private equity fund that intends to assist Kazakh companies in possible Hong Kong listings. Smaller resource companies may follow larger peers. We expect more Kazakhstan-focused companies, in particular resource-related, to eye share offerings in Hong Kong following the examples of the majors. “Kazakhmys and ENRC are not the only two companies who are going to list here. We are thinking about a number of potential other IPOs here [from Kazakh companies] for the future,” Prime Minister Masimov said on October 16. In our view, Tethys Petroleum, an oil and gas exploration company with operations in Kazakhstan, Uzbekistan and Tajikistan, and Alhambra Resources may be the frontrunners in share offerings.

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