Kazakh Oil Major Plans IPO, But Central Bank Will Keep Its Stake

(Bloomberg)The era of quantitative easing and emergency measures has left central banks with trillions in assets. In the case of the National Bank of Kazakhstan, it ended up with 10 percent in the country’s state oil company.

Even as KazMunayGas National Co. prepares an initial public offering by 2020, the central bank will “stay a shareholder” and the question of its exit isn’t now on the agenda, according to Kazakhstan’s sovereign wealth fund Samruk-Kazyna, which owns the rest of the energy producer. In 2015, the central bank stepped in by spending 750 billion tenges -- which at the time equaled about $4 billion -- to purchase the stake and help Samruk-Kazyna defuse the risk of KazMunayGas’s net debt to Ebitda ratio breaching its Eurobond covenants.

“It’s definitely not an obstacle for the IPO,” Berik Beisengaliyev, a management board member at Samruk-Kazyna, said in an interview, calling the arrangement “comfortable” for both sides. “We may possibly return to this issue sometime in the future.”

Kazakhstan’s oil champion, responsible for almost a third of the nation’s crude production, racked up so much debt that its finances teetered two years ago when commodity prices collapsed. At the height of the crisis, Samruk-Kazyna paid $4.7 billion for half of KazMunayGas’s stake in Kashagan, the world’s costliest oil development, before clinching the deal with the central bank.

KazMunayGas is now among the most prized assets that Kazakhstan may put up for sale as part of its biggest-ever privatization program. Alongside power generator Samruk-Energo, it’s slated to be offered as part of the “second wave” of IPOs planned by the government, said Beisengaliyev, who’s also managing director of asset optimization at Samruk-Kazyna.

Ahead of the possible share placement, he said the focus will be on reducing the company’s external debt, which is now at $10 billion, down from $15 billion in 2015. Samruk-Kazyna has no plans to sell its stake in Kashagan, according to Beisengaliyev.

Lower Debt

“The work toward lowering KazMunayGas’s debt burden will continue,” Beisengaliyev said. “To the extent possible, it will be decreased by way of getting a bigger income from higher oil prices, plus optimizing and privatizing non-core assets.”

Assets for sale include stakes in KazMunayGas-Service, which controls the Kempinski Hotel in Turkey, Kazmortransflot and Euro-Asia Air, the largest operator of helicopters in Kazakhstan, according to Samruk-Kazyna. KazMunayGas also sold $2.75 billion of bonds last month.

S&P Global Ratings in April described KazMunayGas’s financial risk profile as “highly leveraged,” with negative free operating cash flow and “relatively weak financial metrics due to high debt.” Still, its “performance has stabilized following oil-price and exchange-rate stabilization,” S&P said.

Buyout Fiasco

Samruk-Kazyna’s Beisengaliyev said despite KazMunayGas’s unsuccessful attempt to buy out minority shareholders in its London-listed unit, Kazakhstan is focusing on protecting the rights of all investors. The effort by KazMunaiGas to access about $3.5 billion held by its subsidiary KazMunayGas EP sparked investors’ discontent.

The struggle grinds on at the company, with independent directors at KazMunayGas EP complaining last month about the parent’s decision to pay less in dividends than was proposed by them. While it’s “theoretically” possible for both the unit and its owner to have parallel listings, that would raise the risk of creating some “confusion,” KazMunayGas National Co. Chief Executive Officer Sauat Mynbayev told reporters last Friday.

KazMunayGas stands a better chance of righting its finances by divesting from non-essential businesses, according to Beisengaliyev.

“The privatization of assets is a reliable source for cutting the debt burden,” he said.
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