Page 10 - bne_Magazine_February_2019

10 I Companies & Markets bne February 2019
Uzbekistan’s bourse is open for business
Mark van Loon in London
These are busy times for the Tashkent Stock Exchange. Foreign delegations visit almost daily, not only from Korea, which bought a stake, but also from Kazakhstan, Russia, Japan and China. Europeans have been slower to react to the opening up of the country and few European faces are seen on the streets of Tashkent at the moment, but we are welcomed warmly.
TSE was founded in 1994, a few years after gaining independence, but lay moribund ever since. In the tightly controlled republic of former president Islam Karimov, who ruled the republic since its independence in 1991, there was little private enterprise outside of the country’s legendary bazaars and the few stocks and bonds issued were window dressing at best.
Things have changed dramatically following Karimov’s death last year. The economy has enjoying a revival since president Shavkat Mirziyoyev took over and started opening the country up in 2016. One of the goals has been to reduce the the state presence in the economy and that is where the stock market comes in.
Still in its infancy, the total market cap of all traded stocks on the TSE is only $1.6bn. In the first nine months of 2018, 113 joint-stock companies (JSC’s) were traded vs. 93 a year earlier.
“Europeans have been slower to react to the opening up of the country”
The total turnover increased a much more impressive 5-fold, but the volumes are still tiny and investors mainly local.
The most actively traded stocks are commercial banks that make up three quarters (75%) of total turnover, with only two banks – Turkiston PJSCB and Kapitalbank,JSCB – accounting for a third (34%) of the entire turnover of the exchange.
But these exotic markets hold an appeal for investors as when they start to move the returns can run to four digits. Moreover,
www.bne.eu
Uzbek dancers celebrating national day
Uzbekistan’s potential partners have an interested in seeing, what is Central Asia’s most populous country, flourish and investing into its financial infrastructure is one of the ways they can do well by doing good. The Korean Stock Exchange acquired a 25% -1 share interest in TSE in 2016, which is
itself 50% is state-owned and 25% held by commercial banks. Uzbekistan has a long and fruitful relationship with Korea ever since Karimov travelled there in the 1990s and persuaded the Daewoo automotive to set up a huge car plant in the country.
For the less liquid traded companies, stockbrokers sometimes have to be creative to fulfil buy orders for their clients. Remi- niscent of Russia in the 1990’s, they might go to companies to buy share certificates off employees at nominal prices, who received them in earlier privatisations during the transition period just after independence, or use middlemen. Buying up privatisation vouchers proved to be a gold mine for Russian investors quick enough to organise it and in Uzbekistan too, it is proving to be a very profitable business for the brokers.
At the TSE, management says there is an IPO pipeline of 50 companies for the next two years, and in the first quarter of 2019 a list with names will be produced. It says the IPO in April 2018 of Quarts, a glass producer, was a success.
It was presented as a “people’s IPO” (3,300 investors took part) and can form a blueprint of placements to come. But brokers disagree: the people IPO meant that each individual could only buy 0.05% ($800) of total shares and the issue ended up being only 53% subscribed with a very fragmented shareholder base. Hardly a successful exercise.
Other companies in the IPO pipeline are mainly telecom companies, food processors, non-core parts of oil & gas companies that the Uzbek state wants off their books. Amongst the most attractive of these assets that will go under the gavel is the country’s national carrier, Uzbekistan Airways. Banks can be privatised as well except when they are deemed strategic. But the natural resources sector, that includes the state-owned oil and gas producer Uzbekneftegaz, as well as gold and mineral mines, are all off limits for the meantime.
At a later stage, IPO’s in London or Asia are possible, the