Page 25 - bne_May 2021_20210501

bne May 2021 Cover story I 25
Two cement companies have attracted particular attention as their stocks are liq- uid and they pay decent dividends. Kizil- kumcement has seen its shares rise from about UZS1,500 a year ago to UZS6,000 today. Kuvasaycement has a very similar story and is another investor darling.
The only true blue chip on the TSE is the Uzbek Commodity Exchange. It has like- wise seen its share price rise from about UZS10,000 a year ago to an all-time high of UZS15,000 ($1.42).
Ironically, the very illiquid nature of the market has also created willing parties on both sides of the deal, but a key part of the trade is if a company pays divi- dends – almost all the liquid stocks pay decent dividends.
“If the shares of a company rise then some investors see that as an opportunity to finally exit and sell,” says Ochilov. “But if the stock pays dividends and the share price is going up then there are those that want to get in and buy. So that is the basis of the market and creates the liquidity."
The dividend yields in Uzbekistan for the stocks that pay dividends are a fairly generous 15-20%, but are denominated in local currency, which reduces their appeal due to high inflation. The focus on dividend stocks also causes the stock’s price to rise as the date of record approaches when the dividend payments come due, and the price falls off again immediately afterwards before building up again slowly a few months later.
Freedom Finance has been selling its
brokerage services to regular Uzbeks and Ochilov estimates the firm has some 7,000 people who are actively investing in the market, which represents about three quarters of the total retail invest- ment base in the country.
In other frontier markets, international investors set up shop and basically track the index and then sell products like exchange- traded funds (ETFs) to their international clients. However, until a year ago foreign investors were not allowed to invest into Uzbek shares unless they formed a partner- ship with a local partner bank. Those rules have already been relaxed.
Capital market reforms
The president’s decree on the capital market reforms is a bid to improve the conditions on the market; at the heart of the decree is a goal to increase the free float on the market to 5% of GDP
– a huge increase from now. The way to achieve this will be to list some of the biggest and sexiest companies on the TSE as a way of privatising them.
One of the measures already in place is
a ban on Uzbekistan’s biggest and best companies from listing overseas before they have a local listing. Typcially in a resource- rich country like Uzbekistan there are a few gigantic cash cows, usually natural resource companies, that are already big enough for a listing in London, Warsaw, Toronto or one of the other big international markets. But the government is hoping to use these blue chip stocks to attract domestic investors
to the local market before allowing the company to raise hundreds of millions of dollars on a foreign exchange.
As bne IntelliNews reported, Uzbekistan’s privatisation drive has been re-launched and the list includes almost all of the country’s biggest and best companies. However, few are ready. Banking shares have already been liberalised and for- eigners can now buy up to 5% of a bank's stock, making them some of the most liquid shares on the exchange.
“There are more banks on the list and they may be ready this year,” says Ochi- lov. “But many of the others are still in the process of being prepared. [The national oil and gas company] Uzbekneftegaz is still merging all its production assets and having its non-core assets cut away. But there is a problem, as the state wants to turn the common stock of the subsidies into a preferred stock that pays very little dividend yield if any, and the sharehold- ers are resisting. [Mining giant] Navoi is still dividing its gold and uranium mining assets, as the gold part will be privatised but the uranium will remain in state control. And Uzbekistan Airways will also not be ready until, say, 2022.”
There's clearly a lot of work to do, but the government looks increasingly seri- ous about getting it done. Part of the president’s decree dissolved the Capital Markets Development Agency (CMDA) and transferred the authority to push the reforms to the Ministry of Finance.
“The CMDA had a lot of good ideas and worked hard, but it was decided that it wasn't going fast enough,” says Ochilov. “But now with the weight of the Ministry of Finance behind the reforms, I'm sure they will be able to push them through.”
www.bne.eu