Sunday, October 01, 2006

How will Kazakhstan’s Internal Political Machinations Effect the Opening Trading of KazMunaiGaz on October 4?

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Public shares of KazMunaiGaz (KMG), Kazakhstan’s state oil company, are scheduled to go on sale at the London Stock Exchange on Wednesday October 4. According to reports, the company was valued at $6.2 billion, and initial shares in London are scheduled to sell at $14.65. Approximately 40% of KMG’s net-worth, or about $2.3 billion, will be floated in a dual listing between the London Stock Exchange and the Kazakhstan KASE market. According to London’s The Times newspaper, about half of the shares are being bought by Kazakh investors, indicating the extent to which Kazakhstan’s elite has gotten the “IPO bug.” The Times also reported that several other Kazkah-based companies are considering making public offerings on the London Stock Exchange in the near future, including the Eurasian Natural Resources Corporation of Alexander Mashkevich, Patokh Chodiev, and Alikhan Ibragimov and the financial empire of KazkommertzBank.

The KazMunaiGaz IPO, however, differs from these others in that KazMunaiGaz is essentially now a state asset. In this context, the opposition political party “Real Ak Zhol” has made a public statement accusing the KazMunaiGaz’s IPO of essentially stripping the majority of Kazakhstan citizens of their deserved revenues from the country’s natural resources. This statement is a follow-up to the original Ak Zhol party’s proposed policy of public revenue-sharing for the state oil and gas company that was a central plank in the party’s platform during the 2004 parliamentary elections. Given the complexities of the IPO process and the limited access to opposition press in Kazakhstan, the statement is unlikely to delay the IPO. It is indicative, however, of the political tension in the country over issues related to natural resources. The question is will this tension effect the performance of the KazMunaiGaz shares in London over the long term? While Kazakhstan investors will certainly continue to be interested in the stock, it is large international institutional investors that will probably be the key to the stock’s success.


Anonymous Anonymous said...

A soon-to-be-boiling pot. This is a great step towards transparency in Kazakhstan: to an extent, the government (ie, KMG) will be forced to show the world its' underwear four times a year, and on-time.

It's completely true that the lower classes have gotten ripped off on this flotation as your list of elite investors indicates. However, the silver lining to this cloud is the above: while issuing coupons to local citizens might have been expedient politically, the transparency of KMG would have been delayed for years to come. Thus, the ultimate windfall to Kazakhs has actually been accelerated by KMG's own disclosure. This means that KMG will be forced to run a very efficient and effective operation...which in the long run will benefit Kazakhstan.

The reasoning above is a hollow victory for the Kazakh pensioner living on $100/month, or a teacher or doctor on about the same wage. Hopefully this float will have the capital markets equivalent of a 'shot of adrenalin' to the Kazakh economic system...and thus stimulate more job growth, rising wages, and have a matching effect on the social infrastructure - over a shorter period.

And of course, the other result could be a great failure of KMG to really perform according to shareholder expectations...thus forcing KMG to 'go private' again and take its' shares off the market...and back into the shadows. Hopefully not, as that would be a Great Leap Backwards.

11:42 AM  
Anonymous Anonymous said...

Sorry for the off-topic comment but do you know if the transcript of the McLaughlin show is available anywhere?

3:26 PM  
Blogger Sean R. Roberts, PhD said...

The transcript does not seem to be up yet on Mclaughlin's website. The website address is:

Keep checking for both September and October for the transcript since the show was actually taped on Sept. 29 and showed in DC on October 1. The show will also continue to be broadcast this week by PBS per local PBS affiliate's schedules.

Once the transcript is on the web, I will also try to link to it in this blog. Hope that helps.

3:36 PM  

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