About ten days ago, a certain quasi-governmental structure called “Industrial Development Fund” JSC turned up in the Kazakh information space. This company is a subsidiary of “Development Bank of Kazakhstan” JSC and Bayterek NMH JSC. It has informed the stock market that, on November 12, 2021, it successfully listed its bonds in the amount of 50 bln tenge.
Here is the announcement published on the Kazakhstan Stock Exchange website (text in bold hereinafter by KZ.expert).
“Industrial Development Fund (Nur-Sultan), whose bonds are officially listed on Kazakhstan Stock Exchange (KASE), has provided KASE with the following communique:
“On November, 12, 2021, on Kazakhstan Stock Exchange JSC, a special trading session was held on the offering of the 3rd issue of bonds of the Industrial Development Fund JSC. The issue of bonds of the Industrial Fund JSC was placed in the amount of KZT50 bln with a maturity of 7 years. Halyk Bank a red as a financial advisor and underwriter for the issue and placement of bonds of Industrial Development Fund JSC.
As a result of the special trading session held, the bonds of the Industrial Development Fund JSC were placed on the amount of 50 billion tenge in full, redeemed by second-tier banks, brokerage and insurance companies, at a rate of return of 12.4% per annum.
We note that the funds raised will be used to finance leasing projects in the manufacturing industry and infrastructure.
Additionally, we inform you that in November 2020 and in March 2021, the Industrial Development Fund JSC placed 2 bond issues with a nominal; volume of 50 billion tenge each and for a period of 10 years. The funds were used to finance leasing projects”.
We got interested in the listing of the IDF bonds because the financial scheme employed by this quasi-governmental company looks more than dubious.
Why do we think so? The thing is that the subsidiary of Development Bank of Kazakhstan JSC and Bayterek NMH JSC (if we are to believe the data on its official website) is involved in providing affordable loans to the so-called groundbreaking projects in the sphere of processing industry. And the interest rates for these loans do not exceed 3% p.a.!
This, among other things, means that the interest rate for the funds borrowed by IDF on the market is 9.4 p.p. higher than the interest rate for the loans the company provides.
In other words, if the quasi-governmental structure lists all the 50 bln tenge successfully, it is guaranteed to suffer annual losses in the amount of 4.7 bln tenge. And this is not taking into consideration the maintenance expenditures and the possible losses from the non-performing loans.
We have taken the trouble of finding the two previous announcements on the successful listing of the IDF bonds.
The first one of November 11, 2020, says that the ten-year bonds in the amount of 50 bln tenge were listed at 11.8%. The second one of March 19, 2021, informs on a listing at 11.5%.
There is another shocking detail that has caught our attention. As follows from the announcements, in the first two cases, there was a sole buyer of the bonds while in the case of third announcement, that of November 12, 2021, their number rose up to three. And there is no guarantee that they are not connected.
We do not know who bought the two first issues of the IDF bonds and who bought 73.6% of the third one. However, according to the announcements of the issuer and the KASE, it was a bank. Or banks. Of course, there can be no claims made against the buyer (buyers) since the earning power of the bonds they purchased is market-based.
Meanwhile, as for Industrial Development Fund JSC and its affiliated structures, one is tempted to ask them a lot of questions. For if the borrower uses all the attracted funds (and it’s already as much as 150 bln tenge) to provide soft loans, its annual losses will constitute 13.35 bln tenge!
In view of this, we would be very interested to know – what’s the point?
We would understand if the IDF bonds were purchased by the National Bank of the Republic of Kazakhstan or the UAPF but their earning power would constitute say 1-2%. This is a crooked yet working scheme that lately has been used in Kazakhstan quite frequently.
But why would a quasi-governmental structure borrow funds at the market rate and then provide them to clients as soft loans?
Well, the matter seems to be as clear as mud. For this reason, we would love to know what’s the point and who’s the author of the idea. Simply in order to applaud them and show that we are at awe of the flexible minds of the people who bear no responsibility for their actions.
