Astana is Born: A new financial centre in Central Asia

The challenge of maximizing finance for development is largely one of co-ordination.

  • By GlobalMarkets
  • 10 Oct 2018
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The challenge of maximizing finance for development is largely one of co-ordination. Bringing the private and public sector together is no easy task, given the different needs, and expectations of all parties. It is also a challenge to overcome the operational difficulties that arise when developed market investors take on developing market risk.

In 2015, a new international financial centre was born in Astana, the capital of Kazakhstan. It has been specifically designed to bring developed market standards of financial intermediation to one of the largest and least capital served regions in the world. The timing for this exciting new IFC could not have been better, coinciding with the roll out of China’s Belt and Road Initiative, and the burgeoning green finance revolution. In this exclusive interview with Kairat Kelimbetov, Governor of Astana International Finance Centre, GlobalMarkets discusses the progress to date, how AIFC will differ from other IFCs, and what it will mean for the financial development of Kazakhstan and the wider region.

Why was it decided to establish the Astana International Financial Centre?

In 2015 the President of the Republic of Kazakhstan created the Astana International Financial Centre (AIFC). This included the formation of a special financial zone, where the principles of English common law understandable to investors are in force.

Obviously, the goal of creating such a centre has always been to improve the local financial market, introduce new instruments, and to create a completely new platform. There was a need to provide more alternatives to the traditional banking sector and to ensure that financial markets sustain long-term growth. This is why we identified the development of capital markets, asset management and private banking, fintech, and responsible investment (Islamic finance and green finance) as our main pillars.

At the same time, the creation of the centre was not only to meet local demand: we see an opportunity to become a truly international financial hub.

As the globalization of the world economy unfolds and deepens, trade and financial relations between countries grow, the role of financial centres and the demand for quality financial services have significantly increased. Even with the global trends today challenging globalization, we see increased regional integration, especially in the Eurasian region.

Kazakhstan, with its strategic location and political stability, has a great potential to become a regional centre for financial intermediation. The integration of the country into regional cooperation organizations and the Eurasian Economic Union creates additional privileges for participants in the financial sector, opening access to a market with a population of more than 300 million people.

Within a radius of more than 3500KM from Astana there is no financial centre that provides high-quality services in accordance with international standards.

How will the success of Astana International Financial Centre contribute to the economic development of Kazakhstan?

First of all, the development of AIFC should play an important role in the implementation of the current structural reforms of the country. AIFC will play a crucial role in the plan to privatize the country’s largest companies. AIFC will implement best practices in different areas such as exchange activities, regulatory regime, and the legal status of investors, which will help improve the business environment of the country as a whole.

Moreover, AIFC together with other stakeholders such as the Pension Fund, Ministry of Finance and other ministries, could become a cluster of long-term capital institutions. Long-term capital management will become an important part of the Third Modernization of Kazakhstan’s economic plan.

As it was noted in the State of the Nation Address by the President of the Republic of Kazakhstan, AIFC should play an important role in attracting financial resources to the economy.

What do you offer that other more established financial centres in the world do not offer?

Our approach is unique; unlike all post-Soviet States we are the first who decided to implement conditions like an independent court, the introduction of the principles of English law and the development of the stock market. To make this possible, appropriate changes were made to the Constitution of Kazakhstan, Constitutional Law was adopted, the conditions for the independence of the AIFC Court and its specialization were examined for the consideration of investment disputes, the working language in AIFC became English.

Also, we have a special tax regime. There is an exemption from payment of corporate, individual, land tax and property tax for a period of 50 years, until the end of 2065.

So, while the ingredients are not entirely uncommon among leading financial centres over the world, what we offer is access to regional markets via a financial centre governed by the principles of English common law.

What lessons have you learnt from other IFCs that have been established in the last 20 years and how have these lessons been incorporated into the structure — legal, physical and technological — of AIFC?

Let’s start with lessons incorporated into the legal structure. A sound, clear and transparent legal framework for the conduct of business coupled with a trustworthy, impartial venue for resolving civil and commercial disputes between parties is a prerequisite for being competitive in the international market place. Therefore, leading international financial centres operate within strong and transparent legislative and judicial environments.

Driven by the prominent success of the Dubai International Financial Centre (DIFC), we developed a business-oriented legal framework based on the principles of English common law and built a trustworthy dispute resolution system for anchoring AIFC on the map of global financial centres.

What differentiates us from, say, Dubai IFC is that we want to play a prominent role on the local market as well. The Kazakh financial market will be concentrated in Astana and we will lead the development of local capital markets.

How important will China be to your future success, both in terms of general economic ties and from specific projects created by the Belt and Road Initiative?

Kazakhstan has been one of the biggest recipients of Chinese FDI in Central Asia with total FDI stock amounting to more than US$13 billion last year under China’s Belt and Road Initiative (BRI) programme. The investments have been attracted into different areas, including transportation, finance, mining and manufacturing. Given the increasing role of Kazakhstan in BRI, the establishment of AIFC is a very timely decision as it might contribute and further strengthen the position of our country.

AIFC is investing considerable time and effort to build a high-tech stock exchange that will comply with the world best practices. AIFC has established a strategic partnership with the Shanghai Stock Exchange (SSE), one of the largest stock exchanges in the world. The expertise of the SSE in developing and maintaining a highly liquid capital market will allow AIFC to create a high-tech exchange that will meet world standards. Moreover, this collaboration between the AIFC and the SSE is aimed at promoting Astana as a regional hub for financial services within the framework of BRI and one of the most important ones outside Mainland China and Hong Kong.

Our platform is expected to be at the forefront of serving infrastructure projects as well as bilateral and multilateral trade, finance, investment and logistics in the context of the Belt and Road Initiative.

Which specific parts of the global financial world are you looking to attract to AIFC — investors, banks, brokers, market structure, fin tech?

We seek to attract liquidity to the market by approaching frontier and emerging markets funds, and Family offices and private investors seeking portfolio diversification and higher growth.

AIFC is interested in attracting investment and capabilities in the extractive industries.  Additionally, AIX supports Belt and Road Initiative investment into Kazakhstan.

Also, to truly position ourselves as the leading fintech hub in Central Asia and the CIS, we are looking at fintech innovation across all our key pillars, namely capital markets via AIX, asset management, private banking, and Islamic finance. Technological innovation and disruption are already being seen across all these pillars. The AIFC Fintech Hub’s key goal is to enable and foster greater innovation to accelerate and future-proof development of these industries, and enable greater efficiency. 

Apart from developing the regional fintech ecosystem and developing a leadership position in financial technologies, the AIFC will also be focusing on addressing core issues such as financial inclusion and access to capital that will support the country’s overall digitisation efforts and economic growth. 

AIFC will also be partnering with leading global fintech hubs, for example, London, Hong Kong, Singapore and Dubai to access new markets and to facilitate transfer of talent and technology. 

Which global firms have you already struck deals with?

In February 2018 China Development Bank (CDB) received licences from the Astana Financial Services Authority (AFSA), the regulatory body of the Astana International Financial Centre. The licences allow CDB to conduct a regulated activity of operating a Representative Office and to provide marketing services to its clients. Also on this list are such companies as China International Capital Corporation Hong Kong Securities Limited, Shenwan Hongyuan, and LUKOIL Kazakhstan Limited.

At the moment there are more than 70 companies registered at the AIFC, and this number grows week by week. The geographic distribution is dominated by those entities coming from Kazakhstan, but the country of origin of the incorporator shows a wide spectrum of firms coming from Estonia, Finland, Hong Kong, Malaysia, PRC, Russia, Malaysia, Singapore, Ukraine and the United Kingdom.

Do you see yourself developing a niche in Green Finance and Sustainable Investing?

Undoubtedly yes.

AIFC has set itself ambitious goals to become the leader in green finance in Central Asia and Eastern Europe by 2025. We see AIFC as a global provider of financial services for green industries and we aim to have more AIFC participants working in green financing and sustainable investment.

For that reason, in 2017 together with EBRD, we developed the concept of the Green Financial System for Kazakhstan, which envisages green bonds as a pilot instrument to be developed on the AIFC platform. Furthermore, in February this year we adopted the AIX Green Bond Rules defining the main regulations for green bond issuers.

AIFC also organizes a number of events targeting potential issuers and investors of green bonds. Also, we are considering launching a grant scheme to cover the cost of second opinions for issuers and creating other incentives to facilitate the development of the market. All in all, we expect the green bond market of Kazakhstan to grow from zero to $200 million by 2020.

Apart from that, in the long run the AIFC aims to develop policies for other green financing instruments at its platform, such as creation of a separate section for emission allowances trading at AIX, green insurance, green loans, green procurements and green fintech.

I cordially invite firms working in this field to try the AIFC platform and grow with us.

  • By GlobalMarkets
  • 10 Oct 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 199,466.05 906 8.12%
2 Citi 187,892.62 783 7.64%
3 Bank of America Merrill Lynch 161,014.35 666 6.55%
4 Barclays 149,926.07 598 6.10%
5 HSBC 123,946.37 656 5.04%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 Credit Agricole CIB 23,615.79 92 7.83%
2 BNP Paribas 22,783.99 94 7.56%
3 Bank of America Merrill Lynch 17,426.11 50 5.78%
4 JPMorgan 15,739.03 45 5.22%
5 UniCredit 13,730.87 76 4.55%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 Morgan Stanley 6,981.75 31 10.38%
2 JPMorgan 6,507.99 41 9.67%
3 Goldman Sachs 5,684.90 28 8.45%
4 Citi 4,430.10 34 6.58%
5 UBS 4,205.38 21 6.25%