Publication: Monitor Volume: 4 Issue: 81

The government of Kazakhstan has made the first steps toward portfolio case-by-case privatization: It has invited a number of national and international investment companies to manage the sale of part of the state’s remaining assets in four of the country’s thirty-two “blue chip” companies on Kazakhstan’s Stock Exchange (KASE). The four companies to be floated are the Oskemen titanium-magnesium plant, the copper company Kazakhmys and two large oil-producing companies–Aqtobemunaigaz and Mangistaumunaigaz. Six companies have been given sale management rights to the four producers: Kazakhstan’s Halyk Savings Bank and Kazkommerts Securities and foreign companies Credit Suisse First Boston, Global Securities, Greenwich Capital Markets and Santander. (Delovaya nedelya [Almaty], April 23; Panorama [Almaty], April 24) Although over the last two years some shares in all four producers had already been partly sold to strategic investors–60 percent of Aqtobemunaigaz and Mangistaumunaigaz are already in foreign hands–the state retains a minority stake. Precise details were not revealed about either the date of the sale or the amount of the minority state equity to be offered.

The planned stock-market flotation of thirty-two of Kazakhstan’s largest enterprises forms the second stage in Kazakhstan’s case-by-case privatization program. Flotation was originally scheduled to begin last October, following the first stage of the case-by-case privatization launched under former Prime Minister Akezhan Kazhegeldin, when key enterprises were either sold to or placed under management contracts with strategic investors. The move to portfolio investment is designed to broaden the ownership-base and encourage Kazakhstanis to participate in marketization. Kazhegeldin was replaced last October, however, and his successor as prime minister, Nurlan Balgimbaev, has frequently threatened to suspend privatization of oil and gas companies until markets become more profitable. (See Monitor, November 27, 1997) Remarks by President Nursultan Nazarbaev about the necessity of “thinking about future generations of Kazakhstanis” were initially interpreted as signaling presidential support for a halt in portfolio investment. Most recently, however, the president’s press secretary has insisted that the president’s remarks did not mean that a complete stop would be put to such investment. (Kazkommerts Securities Weekly News [Almaty], April 24)

The apparent contradiction between rhetoric and policy is most likely explained by the government’s dependence on oil revenues to alleviate fiscal and balance of payments pressures. The government hopes to raise at least $603 million from the sale of these four companies alone. In any case, in firms where majority stakes had already been sold with state influence thus already curtailed, sale is unlikely to seriously affect managerial control. Conflict of interest may present a more serious danger in the long run: Some of the firms managing the sales have already expressed interest in purchasing the equity, creating a situation reminiscent of Russia’s notorious 1995 “shares for loans” privatization scheme. –SC

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