bne IntelliNews – A bumpy street in the direction of relevance for Kazakhstan’s AIFC inventory market

Three years have handed for the reason that launch of Kazakhstan’s Astana Worldwide Finance Centre (AIFC). To nice fanfare, it arrived full with a brand new bourse, the Astana Worldwide Alternate (AIX), partly owned by the Shanghai Inventory Alternate (SSE) and Nasdaq, which offer’s the trade’s buying and selling platform. Nonetheless, on the time of its unveiling, the AIFC was appeared on with a lot scepticism given how Kazakhstan had beforehand did not launch a monetary centre in its industrial capital, Almaty. So what have the Nur-Sultan-based AIFC and AIX achieved since then?

At face worth, there seem like loads of promising developments associated to the monetary centre—primarily with respect to the AIX. This 12 months, for instance, Kazakhstan’s Damu Entrepreneurship Improvement Fund obtained the Inexperienced Market Pioneer award in April for the issuance of the primary ever inexperienced bonds on the Astana Worldwide Alternate (AIX) with the assist of the United Nations Improvement Programme (UNDP) final August. The AIX has additionally introduced plans this 12 months to affix the International Inexperienced Finance Index international community.

Final 12 months, the bourse was undoubtedly and considerably boosted by the double-listing of Kazakh fintech agency’s preliminary public providing (IPO) on the London Inventory Alternate (LSE) and the AIX. The IPO made worldwide headlines as a surprisingly massive success. It valued Kaspi (KSPI) at $6.5bn, the best price ticket ever given to a publicly listed Kazakh firm. The flotation was the LSE’s second largest of 2020 on the time of itemizing and the fourth largest in all of Europe.

Different milestones of the AIX—a part of a particular jurisdiction regime that’s ruled in accordance with English Widespread Legislation—embody the debut inexperienced bonds, the itemizing of the AIX’s first Chinese language yuan-denominated (RMB-denominated) bond and the itemizing of London-listed Ferro-Alloy Assets.

The bourse additionally listed shares of Financial institution Heart Credit score (BCC), which turned the primary issuer listed on AIX primarily based on the Regional Fairness Market Section (REMS), launched in 2020. It goals to grant mid-cap firms entry to a broader investor base and the fairness capital market. In November, the AIX, in partnership with Kazakh funding agency BCC Make investments, introduced the itemizing of latest exchange-traded notes. These are BCC International Alternate Traded Notes (ETNs) linked to the efficiency of one in all Kazakhstan’s largest interval mutual funds, “CenterCredit-Valyutniy”.

Doubts and hopes

Nonetheless, the AIX seems to be removed from buying the liquidity wanted to turn out to be a market that justifies its existence throughout the Kazakh economic system.

A lot of the AIX’s potential for growth right into a useful securities trade market—as in comparison with the Kazakhstan Securities Alternate (KASE) in Almaty, which was Kazakhstan’s first failed try at kicking off a bourse—depends on the Kazakh authorities’s willingness to proceed IPOs of stakes in main state-owned companies. The massive privatisation programme has continued to endure postponements launched by authorities attributable to an absence of beneficial market situations up to now few years. Given the state of affairs with the coronavirus pandemic and related uncertainties, it’s doubtless that the authorities might postpone the deliberate listings as soon as once more this 12 months.

Since 2018, Nur-Sultan’s privatisation programme has solely managed to checklist a 25% stake on the planet’s greatest uranium miner Kazatomprom in a double itemizing shared between the LSE and the AIX, whereas making some cross-listings of cell operator Kcell and Ferro-Alloy Assets.

The programme initially hoped to checklist many extra main companies, together with nationwide provider Air Astana and close to monopolist of the native telecoms market Kazakhtelecom. At the least 5 extra IPOs of huge state-owned firms have been anticipated to go forward throughout 2018-2020, culminating in a list of nationwide oil firm KazMunayGas (KMG), which was anticipated to deliver the privatisation run to an finish. As issues stand, it stays unknown when the clouds will clear for the following massive IPO from Central Asian’s greatest economic system.

The opposition-run web-based Kazakhstan 2.0 venture, which presents nameless analytical content material, is among the uncommon media sources that supply any form of criticism of the AIFC and the AIX.

Kazakhstan 2.0 wrote in February that regardless of annual development, the typical quantity of trades on the AIX, which stood at $3.7mn on a month-to-month foundation in November 2020, left loads to be desired.

“In our estimation, such turnovers are fairly respectable for a inventory trade working in a rural space of Kazakhstan, however not for a strategic venture applied on behalf of the ‘Chief of the Nation’ [ex-president Nursultan Nazarbayev] himself,” it added.

“Furthermore, we strongly suspect that the month-to-month upkeep prices of Astana Worldwide Alternate are fairly similar to its month-to-month turnover,” Kazakhstan 2.0 noticed, implying that the AIX may be a internet drain.

Nonetheless, the analytical service concedes that some measure of progress nonetheless seems to be seen.

“Nonetheless, we should admit that the turnover of Astana Worldwide Alternate is rising. From the [AIX’s] press launch on the outcomes of actions as of December 2020, it follows that ‘the overall buying and selling turnover amounted to $9,265,300.04 (KZT3,895,811,311.64)’. And in January 2021, it elevated to ‘$11,082,201.24, which is equal to KZT4,654,452,560 and a 20% enhance as in comparison with December 2020’,” it famous. 

“The modifications we’ve got seen over the previous six to 9 months have really strengthened the AIX place [in the eyes of] each international and home buyers,” Kazakhstan 2.0 added. “Now we have seen rates of interest decline globally and due to this fact there’s much more curiosity in investing in equities. So, whereas the privatization programme has understandably been deferred, there’s nonetheless a excessive degree of curiosity in investing in Kazakhstan.”

In keeping with AIX’s personal December 2020 replace, AIX issuers raised over $321mn in fairness capital, together with $104.7mn in 2020. The replace additionally talked about that AIX had to date listed 80 securities, together with shares and international depositary receipts, bonds, exchange-traded funds and notes, and $8.6bn price of debt capital ($3.7mn in 2020).

Some observers do seem like maintaining to an optimistic outlook on the AIX.

Impartial monetary analyst Adilzhan Kozhabergenov instructed native enterprise journal in August 2020: “It may be assumed that if a minimum of 10% of Kazakhstan’s firms with a turnover of as much as KZT30bn find yourself itemizing [on the AIX], then this in itself would turn out to be a breakthrough for our market. On this case, investor curiosity in the actual sector of the economic system is prone to develop.”

Optimism or not, although, AIX’s progress alone might not justify the creation and continued operation of its umbrella, the AIFC.

AIFC’s viability

Kazakhstan 2.0 shared its perception that the AIFC itself is sure to fail attributable to it being “initiated and applied by the state, and never born of the market itself”, including that “for that reason it won’t be economically environment friendly”. The analytical medium additionally seen the Kazakh authorities’ try and create an “offshore zone in a completely corrupt nation” as grounds to anticipate “corruption throughout the AIFC”.

“Investments within the AIFC won’t be tantamount to investments within the nation’s economic system, furthermore, they’re unlikely to go outdoors the [AIFC’s jurisdiction] and won’t have a optimistic influence on the extent, effectivity and high quality of the nationwide economic system, to not point out the usual of residing for the majority of Kazakh residents,” the analytical platform famous. 

These criticisms of the AIFC are, in fact, directed on the monetary centre’s viability on the subject of Kazakhstan’s personal prosperity, however even purely as an entity standing by itself the AIFC seems to have inefficiencies constructed into its fundamental construction.

One instance may be seen in a 2019 journey report for OnFrontiers by a regional analysis analyst, Scott Osheroff, of Asia Frontier Capital’s (AFC’s) Asia Frontier Fund.

“What was attention-grabbing is that within the twenty first Century digital economic system during which we dwell, firms integrated within the AIFC are required to have a bodily workplace location in Astana with staff within the workplace. Maybe that partially explains why 4 months after the opening of the AIFC there have been solely 12 registered firms,” Osheroff talked about.

Price noting is that the makes an attempt to correctly kick off the operation of the AIFC and the AIX have been distorted by the worldwide pandemic in 2020 and 2021, thus solely time will inform if the aspiring regional monetary hub will ship on its guarantees within the post-COVID-19 world.

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