Kazakhstan's steady economic growth, and the corresponding expansion of banks' asset bases, is ensuring a healthy level of capital markets borrowing. Worries about oversupply of Kazakh bonds have proved groundless.
Kazakhstan benefits from strong appetite for emerging markets paper among a wide circle of investors. Its sovereign investment-grade status, the benefits of the oil price boom and economic growth at 9% a year all add to the attraction.
This year's total issuance is likely to be lower than last year's, which was boosted by big corporate deals, including a $1.1 billion, 10-year bond by the US-controlled oil producer Tengizchevroil and a $250 million, seven-year offering from Intergas Central Asia. But that's essentially a sign that the financial system is maturing, bankers believe.
Samad Sirohey, director, emerging markets debt, at Citigroup in London, says: "Kazakhstan's bank assets grew by more than 40% last year. They now stand at around 40% of GDP, so there is some way to go to the developing country average of around 70%.
"If the rate of growth of banks' assets tapers off in the next year or two, bank issuers will be in a much better position to tell the market their exact borrowing needs. This should overcome any worries about oversupply, which were raised in 2004, not by any fundamental problem but by a cluster of issues in a brief period."
Kazakhstan's more experienced issuers – such as the two largest banks, Kazkommertsbank and Bank TuranAlem (BTA) – are now managing their yield curves to make their borrowing more effective, Sirohey points out.
BTA has this year combined the issue of a $350 million, 10-year Eurobond with other forms of financing, including a R$10 billion bond issued in Moscow and a
$50 million, one-year syndicated Islamic finance loan arranged in Dubai. Kazkommertsbank in February tapped its 2009 Eurobond for a further $150 million.
George Niedringhaus, executive director at ABN Amro, says: "The yield curves of the largest Kazakh issuers show that there is no substantial supply-demand imbalance. This year there has been a gentle widening of spreads due to general emerging market dynamics." The Tengizchevroil 2014 bond, for example, widened to 620bp over US treasuries in April from 612bp in January, while the Kazkommertsbank 2009 note went to 735bp over from 687bp when it was tapped in February.
Demand for Kazakh instruments is healthy rather than indiscriminate, though. When the country's fifth largest bank, ATF, issued a seven-year Eurobond in mid-April, against a background of concern about the US treasury bond market, it scaled the volume back from $250 million to $200 million and fixed the coupon at 9.25% rather than the 8.75% originally planned. Bond traders say that reflected a cooling of enthusiasm since another second-tier bank, CenterCredit, issued a $200 million, three-year Eurobond with an 8% coupon in February.
debut placing
Significantly, though, Kazakh banks and companies can access the market at a time when very few other emerging markets borrowers can. In mid-April, for example, Nurbank, Kazakhstan's seventh biggest by assets, successfully placed its debut Eurobond with a $125 million, three-year deal. The relatively short tenor helped build demand at a time when the market generally was plagued by uncertainty.
Almaty's banking sector stands in sharp contrast to Moscow's. Russian banks, with one or two exceptions, can't finance corporates the way they want to, because their cost of capital is too high and the constraints of uneven banking reform too great – while Kazakh banks can and do.
The main beneficiaries are second- and third-tier companies – since Kazakhstan's largest commodity producers can access international capital markets directly, and one of them, the copper producer Kazakhmys, plans an international IPO this year.
Sergei Mokroussov, director at Kazkommertsbank, says: "There was a low level of capital expenditure investment in the 1990s, but with strong GDP growth, that has changed. There is substantial demand for longer-term finance from our corporate clients, not only in the oil, gas and metals sectors but also in consumer goods and other industries. We are lending for tenors of up to five years, almost always with forms
of security such as pre-export structures, ECA guarantees, or security over fixed and other assets."
In future, an important driver of Kazakh borrowing will be mortgage securitization. The mortgage portfolio stood at an estimated $800 million at the end of 2004 and is projected by recent research to grow 16-fold over the next five years. "The mortgage market has been fuelled by the increasing wealth of the population, higher disposable incomes and improving macroeconomic indicators," says Kalamkas Tuleshova, head of multilaterals and development at BTA. "The local banks already have portfolios large enough for securitization but lack experience. International institutions' experience will be of great value here."