Elena Bakhmutova: We need to strike a balance between speed and buyers engagement
1773
27 August 2014
According to the data of the Ministry of finance, in course of second stage of privatization 28 assets were sold with total price of 1, 77 billion Tenge. 12 facilities of communal property (about 80 million Tenge) and 16 assets of state holdings (about 999 million Tenge).
SWF «Samruk-Kazyna» puts 64 assets this year for sale, both core and non-core. Furthermore, IPO is planned for 10% minus 1 share of the «KEGOC» JSC. Deputy Chairperson of the «Samruk-Kazyna» SWF Elena Bakhmutova has told kursiv.kz how the buyers attraction will be done for the sold assets, as well as what are the expectations of the fund for the private sector.
Miss Bakhmutova, according to the data of the gosreestr.kz portal, so far none of the 15 assets put up for sale in august was sold. What is the reason? Do you think it is because of the lack of information for investors?
The first meeting of the commission was on 23 July 2014. There, decision was made on 15 companies: they should be ready to be marketed in august. In this case in order to privatize them some formal procedures should be observed. So, that was the decision made by the commission, based on the level of readiness of the assets. Consequently, the announcement of tender has to be published. Potential investors have 30 days to be registered as potential buyers. Therefore, even the announcement was made, 30 more days are needed for investors to identify themselves. Out of 15 companies for which the decision was made 10 belong to 10 «KTZ» JSC, four companies belong to «Kazakhstan Engineering» and one company belongs to NAC «Kazatomprom». As of August 25 announcement of tender was made for one company of «Kazatomprom». This is «Kazgeomash» LLP. For three assets of «Kazakhstan Engineering», namely «Bioengineering» LLP, «Remservice» LLP and «Mars» LLP consent for buying out was received. I will remind you: if the companies are incorporated in the form of LLP, usually, according to the articles of association, the cofounders have a right to buy out share, if one of the participants decides to sell it. Therefore, if such participants announce their wish to buy this share, this will be considered. For three companies, in particular consent was received from second partners for buying out the shares. On the remaining 11 out of these 15, the announcement will be published soon and the process of potential buyers’ registration will start. At the same time I do not deny the need for broader investors engagement, this is especially relevant for rather large companies, where the business is not simple and preliminary advanced study of the conditions for doing business is needed on the part of potential buyers. Our intention is also to work actively with the investors.
In which way?
We are planning to hold an investors forum in Astana on August, 29. Considering that most of the assets are outside of Astana, it is necessary to think of the regional aspect and hold meetings closer to potential investors. In September, we are planning to have several fieldtrips closer to the sites in order to have opportunity of attracting investors, who are located in the given region. These meetings will be organized with participation of the companies, which will be able to answer the questions of potential buyers in more details. We are trying to balance between the speed, transparency and interested buyers engagement.
During the roundtable meeting in the National Chamber of entrepreneurs you have announced a recommendation on the data rooms creation, with the help of which future buyers of the Fund assets will be able to familiarize themselves with activities of the companies, put out for sale. Could you elaborate more about it? When will they be created? What information will be available? Who can use them?
These can be virtual or real rooms. In order to learn information, which by nature contains commercial secrets, it will be necessary to register on the web-site gosreestr.kz as a buyer and make a guarantee fee according to the procedures. It is also necessary to sign the limitation documents; these are standard documents for non-disclosure. This is a general practice, the so-called due diligence, which is usually done, when assets are bought or sold. We think that for the assets over 2,5 billion Tenge (approximately) or for those with wide business, the buyers should get this information before purchase. Our commission has provided the companies, whose shares will be put for sale, with recommendations on preparing the data in the form of data room. I believe the in the second half of September the companies will open such rooms and investors will be able to familiarize themselves.
Will these be virtual or physical?
Virtual rooms require higher costs. This is reasonable, when there is a wide group of potential investors and they are all ready to get information virtually. Certainly, it is easier to make physical rooms. All you need is just come to the room, sign the necessary documents, study the contracts, results of tax inspections, and other financial and legal statements.
What assets are sold with a two-stage bidding?
In our regulation, approved by the Board of directors the types of bidding are described. There is an e-auction. This type of bidding is used in cases, when nothing matters, but price. There is an e-bidding mechanism, when investors have to fulfil certain conditions, but still the main thing is price. In such case, the terms and conditions are announced on the website. Usually, these are related to preserving the core business activity, as well as number of jobs and collective agreement for a year. We think that in course of one year, a new investor can change the line of business, and if he makes this decision, then the team or individuals will be able to find new job. This is in relation to e-bidding.
If the asset is regulated as natural monopoly or is a significant or strategic facility, or there are interests of national security, then special requirements are set for potential buyer, in this case two-stage bidding is required. On the first stage, potential participants are selected, and on the second stage the envelopes with financial proposals are opened. Although this is not an e-platform, the procedure is standard and transparent as well. This procedure is now widely used, including the practice of public procurement. Incidentally, we are talking about open two-stage bidding. The relevant commissions will hold it. Our subsidiary holding companies – KTZ, KMG, “Kazatomprom” and “Kazakhstan engineering” and others have created their own sectoral commissions. Their leaders have been appointed, there are independent external members of the commissions, and if subsidiary holding companies are assigned the duty of bidding organizers, then decisions will be made by their sectoral conditions in accordance with the regulation, approved by the Board of directors of the Fund.
Have the companies been chosen which will be sold in this way?
This is the competence of the management board of the Fund. There are several assets which will be sold through two-stage bidding in 2014. There are no such assets in August. Those that should be ready for sale in September will be considered during the next commission meeting, which will be held in early September. After the schedule is adopted, this information will be made public.
Business models of many privatized companies are focused on state government contracts and contracts of the national companies. Many buyers might be repelled by the fact that after privatization the number of contract could go down. Meaning, what is the guarantee that the company will sign as many contracts in the future and generate profits?
I have mentioned that we recommend preserving the activities profile for a year. This is a form of the guarantee for the company’s existence for this year. However, it is reasonable to suppose that when one buys a business there is no lifetime guarantee. The buyer has both advantages and challenges. Naturally, it is necessary to build relations with potential suppliers and customers. This implies new business and new strategies. Therefore, the buyer should have enough time to learn the essence of business and its relations with other companies in the Fund group. No one prohibits the keep these relations if there are conditions for mutual benefit on the part of the fund companies and companies, which are no longer part of the fund group after sale. If the business was somewhat artificial in nature, then it is in the interest of fund companies to remove this artificial component and in the interests of new business is to find new market niches and new partners. We assume that new opportunities will arise with new private buyers of a company, which will give a push for their development.
During the meeting of expert-advisory council under the Fund, you have mentioned that before «KEGOC» JSC goes for people’s IPO reforms should be done in the area of tariff regulation. This was said numerous times in 2013 as well. What kind of work is done in this direction?
The work has already been done. Indeed, there were many discussions on this matter. However, at the end the experience of the first company, which went public, was used – this is Kaztransoil. They had a question of tariff regulation as well. We took the same example and used tested and confirmed approaches. Namely, new cap tariff levels and tariff estimates were approved by order of the Agency for regulation of natural monopolies. The essence of them is that they are prepared based on market principles, as it was done in the case of “Kaztransoil”. New approach to tariff setting allows fair consideration of company costs when developing a tariff. We expect that this will have a positive influence on developing the expectations of potential shareholders, i.e. on the company valuation.
You have also mentioned that before floating the shares of «KEGOC», amendments to legislation are needed, which would ensure protection of strategic assets of «KEGOC» even if some of the shares are sold to population. What is the essence of these amendments?
Absolutely correct. Amendments to legislation were made. Namely, in august Decree of the President of the RK «On the list of facilities not subject to transfer» was signed. On 2 July 2014, a law: «On amending selected government acts on the matters of state management» was signed. Within the framework of this law norms were adopted, which prohibit assignment of national electricity grid to natural persons or legal entities, as well as encumbrance of third persons rights. Furthermore, the law introduces limitations for national management holding, in this case - «Samruk-Kazyna» fund, on transferring of «KEGOC» national company shares in the amount exceeding 10% minus one share.
Which of the Fund’s foreign assets will be sold according to the plan by the end of the year? What will be the procedure? Will external investors be able to participate?
As you may remember, the full list of assets for sale was approved by the relevant act №429 of 12 May 2014. The same act contains the period of sale by years. So, the foreign assets are scheduled for sale in 2015. In particular, 8 assets are located outside of the country. 3 assets in Romania, 1 asset in Georgia, 1 asset in Kyrgyzstan, and 3 assets in the Ukraine. Each of these assets requires preliminary preparation before marketing. For some of them limitations of legal nature can exist depending on the country of their location. So, the work has started. It is also necessary to take into account country risk as well. There are two facilities in the Ukraine, these are «KazakhOil Ukraine» LLP and «Kherson refinery» CJSC. For these current political and economic situation should be definitely taken into account.
According to our assets sale rules, the relevant commissions have a right to define requirements to the potential buyers, including their residency. I suppose that for the assets located outside of Kazakhstan, it is necessary to take cautious approach to the question of whether non-residents should be involved, or these should be only residents of the Republic of Kazakhstan. It should be considered in each individual case depending on the assets.
What is your opinion on the comments mentioned by the representatives of the National chamber of entrepreneurs with regards that the data of the bidding should include not only region, but also the name of buyer?
In general, I am positive on this matter. It is desirable to disclose the name (name of the company), but it is necessary to adhere to all the legal formalities. It is necessary to notify the buyer about intentions to disclose information about him. Therefore, the buyer should know from the very beginning that we plan to publish information subject to receiving his consent on disclosing his information. It is desirable to develop a unified approach with the government bodies, primarily, with the ministry of finance, because there should be consistency concerning the assets subject to privatization. I hope that we will reach common understanding.
Were there any recommendations from the National chamber of entrepreneurs or other business association regarding the companies that could be transferred to private sector?
So far there were no such proposals. There was also a suggestion to have a broader use for the public-private partnership mechanism, including transfer of the management with subsequent sale. The question is – how much time will it require. First, the pre-sale preparation should be done in the conditions of fiduciary management, and then the asset can be sold. Currently there were no specific proposals, but I do not eliminate the possibility that should there be any; the fund is ready to consider them. This includes the public-private partnership.
Source: Курсив.kz
SWF «Samruk-Kazyna» puts 64 assets this year for sale, both core and non-core. Furthermore, IPO is planned for 10% minus 1 share of the «KEGOC» JSC. Deputy Chairperson of the «Samruk-Kazyna» SWF Elena Bakhmutova has told kursiv.kz how the buyers attraction will be done for the sold assets, as well as what are the expectations of the fund for the private sector.
Miss Bakhmutova, according to the data of the gosreestr.kz portal, so far none of the 15 assets put up for sale in august was sold. What is the reason? Do you think it is because of the lack of information for investors?
The first meeting of the commission was on 23 July 2014. There, decision was made on 15 companies: they should be ready to be marketed in august. In this case in order to privatize them some formal procedures should be observed. So, that was the decision made by the commission, based on the level of readiness of the assets. Consequently, the announcement of tender has to be published. Potential investors have 30 days to be registered as potential buyers. Therefore, even the announcement was made, 30 more days are needed for investors to identify themselves. Out of 15 companies for which the decision was made 10 belong to 10 «KTZ» JSC, four companies belong to «Kazakhstan Engineering» and one company belongs to NAC «Kazatomprom». As of August 25 announcement of tender was made for one company of «Kazatomprom». This is «Kazgeomash» LLP. For three assets of «Kazakhstan Engineering», namely «Bioengineering» LLP, «Remservice» LLP and «Mars» LLP consent for buying out was received. I will remind you: if the companies are incorporated in the form of LLP, usually, according to the articles of association, the cofounders have a right to buy out share, if one of the participants decides to sell it. Therefore, if such participants announce their wish to buy this share, this will be considered. For three companies, in particular consent was received from second partners for buying out the shares. On the remaining 11 out of these 15, the announcement will be published soon and the process of potential buyers’ registration will start. At the same time I do not deny the need for broader investors engagement, this is especially relevant for rather large companies, where the business is not simple and preliminary advanced study of the conditions for doing business is needed on the part of potential buyers. Our intention is also to work actively with the investors.
In which way?
We are planning to hold an investors forum in Astana on August, 29. Considering that most of the assets are outside of Astana, it is necessary to think of the regional aspect and hold meetings closer to potential investors. In September, we are planning to have several fieldtrips closer to the sites in order to have opportunity of attracting investors, who are located in the given region. These meetings will be organized with participation of the companies, which will be able to answer the questions of potential buyers in more details. We are trying to balance between the speed, transparency and interested buyers engagement.
During the roundtable meeting in the National Chamber of entrepreneurs you have announced a recommendation on the data rooms creation, with the help of which future buyers of the Fund assets will be able to familiarize themselves with activities of the companies, put out for sale. Could you elaborate more about it? When will they be created? What information will be available? Who can use them?
These can be virtual or real rooms. In order to learn information, which by nature contains commercial secrets, it will be necessary to register on the web-site gosreestr.kz as a buyer and make a guarantee fee according to the procedures. It is also necessary to sign the limitation documents; these are standard documents for non-disclosure. This is a general practice, the so-called due diligence, which is usually done, when assets are bought or sold. We think that for the assets over 2,5 billion Tenge (approximately) or for those with wide business, the buyers should get this information before purchase. Our commission has provided the companies, whose shares will be put for sale, with recommendations on preparing the data in the form of data room. I believe the in the second half of September the companies will open such rooms and investors will be able to familiarize themselves.
Will these be virtual or physical?
Virtual rooms require higher costs. This is reasonable, when there is a wide group of potential investors and they are all ready to get information virtually. Certainly, it is easier to make physical rooms. All you need is just come to the room, sign the necessary documents, study the contracts, results of tax inspections, and other financial and legal statements.
What assets are sold with a two-stage bidding?
In our regulation, approved by the Board of directors the types of bidding are described. There is an e-auction. This type of bidding is used in cases, when nothing matters, but price. There is an e-bidding mechanism, when investors have to fulfil certain conditions, but still the main thing is price. In such case, the terms and conditions are announced on the website. Usually, these are related to preserving the core business activity, as well as number of jobs and collective agreement for a year. We think that in course of one year, a new investor can change the line of business, and if he makes this decision, then the team or individuals will be able to find new job. This is in relation to e-bidding.
If the asset is regulated as natural monopoly or is a significant or strategic facility, or there are interests of national security, then special requirements are set for potential buyer, in this case two-stage bidding is required. On the first stage, potential participants are selected, and on the second stage the envelopes with financial proposals are opened. Although this is not an e-platform, the procedure is standard and transparent as well. This procedure is now widely used, including the practice of public procurement. Incidentally, we are talking about open two-stage bidding. The relevant commissions will hold it. Our subsidiary holding companies – KTZ, KMG, “Kazatomprom” and “Kazakhstan engineering” and others have created their own sectoral commissions. Their leaders have been appointed, there are independent external members of the commissions, and if subsidiary holding companies are assigned the duty of bidding organizers, then decisions will be made by their sectoral conditions in accordance with the regulation, approved by the Board of directors of the Fund.
Have the companies been chosen which will be sold in this way?
This is the competence of the management board of the Fund. There are several assets which will be sold through two-stage bidding in 2014. There are no such assets in August. Those that should be ready for sale in September will be considered during the next commission meeting, which will be held in early September. After the schedule is adopted, this information will be made public.
Business models of many privatized companies are focused on state government contracts and contracts of the national companies. Many buyers might be repelled by the fact that after privatization the number of contract could go down. Meaning, what is the guarantee that the company will sign as many contracts in the future and generate profits?
I have mentioned that we recommend preserving the activities profile for a year. This is a form of the guarantee for the company’s existence for this year. However, it is reasonable to suppose that when one buys a business there is no lifetime guarantee. The buyer has both advantages and challenges. Naturally, it is necessary to build relations with potential suppliers and customers. This implies new business and new strategies. Therefore, the buyer should have enough time to learn the essence of business and its relations with other companies in the Fund group. No one prohibits the keep these relations if there are conditions for mutual benefit on the part of the fund companies and companies, which are no longer part of the fund group after sale. If the business was somewhat artificial in nature, then it is in the interest of fund companies to remove this artificial component and in the interests of new business is to find new market niches and new partners. We assume that new opportunities will arise with new private buyers of a company, which will give a push for their development.
During the meeting of expert-advisory council under the Fund, you have mentioned that before «KEGOC» JSC goes for people’s IPO reforms should be done in the area of tariff regulation. This was said numerous times in 2013 as well. What kind of work is done in this direction?
The work has already been done. Indeed, there were many discussions on this matter. However, at the end the experience of the first company, which went public, was used – this is Kaztransoil. They had a question of tariff regulation as well. We took the same example and used tested and confirmed approaches. Namely, new cap tariff levels and tariff estimates were approved by order of the Agency for regulation of natural monopolies. The essence of them is that they are prepared based on market principles, as it was done in the case of “Kaztransoil”. New approach to tariff setting allows fair consideration of company costs when developing a tariff. We expect that this will have a positive influence on developing the expectations of potential shareholders, i.e. on the company valuation.
You have also mentioned that before floating the shares of «KEGOC», amendments to legislation are needed, which would ensure protection of strategic assets of «KEGOC» even if some of the shares are sold to population. What is the essence of these amendments?
Absolutely correct. Amendments to legislation were made. Namely, in august Decree of the President of the RK «On the list of facilities not subject to transfer» was signed. On 2 July 2014, a law: «On amending selected government acts on the matters of state management» was signed. Within the framework of this law norms were adopted, which prohibit assignment of national electricity grid to natural persons or legal entities, as well as encumbrance of third persons rights. Furthermore, the law introduces limitations for national management holding, in this case - «Samruk-Kazyna» fund, on transferring of «KEGOC» national company shares in the amount exceeding 10% minus one share.
Which of the Fund’s foreign assets will be sold according to the plan by the end of the year? What will be the procedure? Will external investors be able to participate?
As you may remember, the full list of assets for sale was approved by the relevant act №429 of 12 May 2014. The same act contains the period of sale by years. So, the foreign assets are scheduled for sale in 2015. In particular, 8 assets are located outside of the country. 3 assets in Romania, 1 asset in Georgia, 1 asset in Kyrgyzstan, and 3 assets in the Ukraine. Each of these assets requires preliminary preparation before marketing. For some of them limitations of legal nature can exist depending on the country of their location. So, the work has started. It is also necessary to take into account country risk as well. There are two facilities in the Ukraine, these are «KazakhOil Ukraine» LLP and «Kherson refinery» CJSC. For these current political and economic situation should be definitely taken into account.
According to our assets sale rules, the relevant commissions have a right to define requirements to the potential buyers, including their residency. I suppose that for the assets located outside of Kazakhstan, it is necessary to take cautious approach to the question of whether non-residents should be involved, or these should be only residents of the Republic of Kazakhstan. It should be considered in each individual case depending on the assets.
What is your opinion on the comments mentioned by the representatives of the National chamber of entrepreneurs with regards that the data of the bidding should include not only region, but also the name of buyer?
In general, I am positive on this matter. It is desirable to disclose the name (name of the company), but it is necessary to adhere to all the legal formalities. It is necessary to notify the buyer about intentions to disclose information about him. Therefore, the buyer should know from the very beginning that we plan to publish information subject to receiving his consent on disclosing his information. It is desirable to develop a unified approach with the government bodies, primarily, with the ministry of finance, because there should be consistency concerning the assets subject to privatization. I hope that we will reach common understanding.
Were there any recommendations from the National chamber of entrepreneurs or other business association regarding the companies that could be transferred to private sector?
So far there were no such proposals. There was also a suggestion to have a broader use for the public-private partnership mechanism, including transfer of the management with subsequent sale. The question is – how much time will it require. First, the pre-sale preparation should be done in the conditions of fiduciary management, and then the asset can be sold. Currently there were no specific proposals, but I do not eliminate the possibility that should there be any; the fund is ready to consider them. This includes the public-private partnership.
Source: Курсив.kz
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