Copying and distributing are prohibited without permission of the publisher.


Fund seeks to open Uzbekistan to London investors

By Sam Kerr
16 Jul 2019

Investors in London have been considering the opportunity to invest in Uzbekistan this week, through a new closed-end fund, Oltin, the first internationally listed security giving investors exposure to the Central Asian republic.

The investment manager is Sturgeon Capital and the placing agent is Kazakh investment bank Visor Capital. Sturgeon is targeting a sale of 5m ordinary shares at €10 a share to raise €50m.

Oltin will invest in sectors that it believes stand to benefit from economic growth in Uzbekistan, as well as from the impact of ongoing reforms.

Sturgeon has also partnered with one of Uzbekistan’s local brokers, Orient Securities, which will provide it with domestic support.

Alijon Ravshanov leads the team at Orient Securities. Ravshanov is the former head and founder of UzOman Capital, a joint sovereign fund between Uzbekistan and Oman set up to invest in Uzbek private equity opportunities.

“This is the first Uzbek dedicated investment vehicle to be listed internationally,” Clemente Cappello, the founder and chief executive of Sturgeon Capital, told GlobalCapital. “It had been a closed Soviet-style economy until around two and a half years ago, when it had a fall of the Berlin Wall type of moment.

“Since then the government has embarked on a number of radical reforms including economic liberalisation, privatization, and tax reforms. It is also putting in place younger Western-educated ministers and public officials.”

Cappello said that another factor that works in the country’s favour is its population, which, at 33m, is the highest in the region and of which two-thirds is under the age of 35. Uzbekistan’s people are also highly educated. According to UNESCO, the country has a 99.99% literacy rate.   

“It is a story that has been well known in the region for some time and frontier investors have been paying close attention, but for the most part it is still a fairly unknown story,” Cappello said.

According to the IPO prospectus, Sturgeon will target “best in class companies” from across a number of sectors, focusing in particular on the quality of management and alignment with minority shareholders’ interests.

Sturgeon says that by pursuing this strategy, it is seeking to balance the greater risk of higher return growth investments with the lower risk of income generating investments.

The first of many?

Sturgeon has already begun discussions with companies, including insurance company JSC Universal Sugurta, Alliance Leasing and Universal Bank.

It also says that it is in discussion with a niche agribusiness, a logistics and fulfilment centre, a retail software start-up and a microfinance start-up.

Sturgeon has identified a number of further Uzbekistan related equity and securities in companies and other vehicles that meet its investment objectives and investment policy.

These include private equity investment opportunities identified through Sturgeon and its affiliates’ network and relationships.

Sturgeon also said in the prospectus that it prefers to invest in privately owned companies, as opposed to larger, previously state-owned companies, where the incentives of different classes of shareholders may not be as aligned and where legacy issues may hinder performance.

Given that the daily trading volume on the Tashkent Stock Exchange is low and that the majority of listed companies are formerly state-owned, there are very few opportunities to invest in privately owned Uzbek growth stories.

"Getting exposure to the country has been very difficult given the local market only trades around $50,000 a day,” Cappello said. “It is also mostly made up of companies with significant government control.

“We have decided to partner with quality entrepreneurs and companies which are trading on very low multiples, under five times earnings in some cases.”

The IPO is likely the first of a number of international Uzbek listings over the next few years.

Uzbekistan’s largest state mining companies — Navoi Mining and Metallurgical Company, Uzbek Metallurgical Company, and Almalyk MMC — are expected to hold local and international listings over 2022-23.

Uzbekistan may still be too much of a leap for some investors, but for frontier market specialists willing to look at a new market the rewards could be substantial.

In its investor documentation, Sturgeon outlines a potential downside risk of minus 3% in an unfavourable scenario over five years, based on past trading.

However, on the upside, it estimates a potential 6% return in a moderate scenario and 11% return in a favourable one, over a five year period.

The initial placing is scheduled to close on Friday, and if the IPO is priced, shares will be admitted to the London Stock Exchange on July 23.

By Sam Kerr
16 Jul 2019