Mergers and Acquisitions. What Kazakhstan Sold over Six Months
Yulia Feller, head of the financial expertise and consulting department of Resmi Finance and Investment House
Over the first six months of 2008 there were recorded 19 mergers and acquisitions (M&A) in Kazakhstan, totaling $7,513m. This figure shows that companies considerably decreased their activity in acquiring assets. For example, the overall amount of M&A in 2007 was about 10 billion tenge with 49 transactions recorded (Chart 1).
Thus, we can forecast that unless there are big transactions in the oil, gas or mining industries, which led in 2007 in terms of prices and amounts, by the end of the year the M&A market in 2008 will not be able to exceed last year’s figures. One can assume that the common negative world tendencies, which partially affected the situation in Kazakhstan, also decreased the Kazakh M&A market. Analysing the transactions of the current year, one can see that they were mostly concluded by large companies, while medium capitalisation companies only concluded a few. In our opinion this was caused by financial difficulties, which resulted in the revision of strategic plans.
The breakdown of the market by industries depending on prices and amounts of transactions is shown in Charts 2 and 3. It is clear from the results of the first six months that the oil and gas industries account for 35% of the total price of the transactions. Therefore, they are holding onto leading positions in M&A market. They are followed by mining industry with 33%. If we analyse the market’s industrial structure in terms of the amount of transactions, we see that these industries interchange. In general, we can say that over the first six months they accounted for the larger part of the Kazakh M&A market. This activity can be explained by the increasing investment appeal of assets in these industries against increasing world prices of raw materials and minerals.
Among the most important were two transactions. The first was the purchase of 51% of Mangistaumunaigas by Kazmunaigas. The price of the acquisition was $2.3bn. The second was the purchase of Ekibastuz Urban Power Plant-1 and Maikuben West coal strip mine by Kazakhmys. The price of this was about $1.5bn.
Among the interesting transactions in the Kazakh mining industry that have been conducted lately is the increase of Kazakhmys’ share in ENRC, reaching 25.02% of the total amount of placed shares.
As for the financial sector, the decreasing amount of transactions can be explained by the instability in international financial markets. It is logical that plans of development and acquisition of additional assets were reviewed after the changes that took place. The most significant transaction in this sector was the purchase of a 50% stake in Bank CenterCredit by Korean Kookmin Bank. Alnair Capital Holding acquired shares in Kazkommertsbank. At present this company owns 25.15% of shares in Kazkommertsbank1.
1. Since the bargain was dated August 2008 the data was not included in the total amount of the market for the first months of 2008.
In other industries, such as transport, retail and real estate, there have been no significant transactions recorded. Meanwhile in the telecommunications sector we should note the purchase of a 49.9% share in Khabar Agency, which owns Khabar and El Arna TV channels, national satellite TV channel Caspionet and Khabar Radio, by the National Scientific and Technological Holding Samgau. This stake was acquired through a special bid.
If we look at the countries that conclude bargains on the Kazakh M&A market (Chart 4), we can see that national companies are particularly active. Local transactions (in which only Kazakh companies participate) and transactions in which our investors buy assets abroad total about 90% of the overall amount of the market, with 78% of the transactions being local.
Among the significant purchases of assets on the Kazakh market by foreign companies we note the above mentioned purchase by Kookmin Bank. We should also not forget about the purchase of Kazakh ALMEX Assets Management by Russian investment company Troika Dialog.
The first six months were also different from 2006 and 2007 because in those years we saw significant interest from Chinese oil investors, while in this year the situation is quite the opposite.
The further development of the Kazakh M&A market, in particular its structural changes, will, in our opinion, be connected with mining industry, retail business and services companies. The last two sectors are composed of a significant number of companies with small capitalisation and major companies are only now being formed. More and more foreign companies show interest in these industries and it will certainly increase competition and force some companies to merge and review their strategic development plans. As for the mining industry, its significant investment appeal is mainly caused by the stable increase of mineral resource prices and it is obvious that we will not see a decrease in investment within the next five years.
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