The Kazakhstan press has recently got the news that the Razvedka Dobycha KazMunayGaz company had finally bought 320688 their own ordinary shares and 61.3 mln GDR at the Kazakhstan Stock Exchange. From the press publications citing the KASE data, it follows that the shares were bought for $84 per item, GDR – for $14 and the total expenditures of the issuer for buying the shares amounted to 885.1 mln US dollars.

A little later, KazMunayGaz announced that, from February 20 to April 4, 2018, a special auction will be held at KASE to buy out its shares. Since, as of January 22, 2018, the issuer received the notices on the plans to buy out 119741576 GDR (about 87% of their total number in circulation), then, at the second stage, the quantity of the purchased GDR will consist of about 58.4 mln and the money spent to pay for them will amount to 817.6 mln US dollars.

Therefore, soon, the KazMunayGaz national company will acquire more than 75% of the rights to vote in the RD KazMunayGaz company and will be able to lobby the shareholders’ decision to exclude the GDR from the official list of the shares traded at the London Stock Exchange at the same time delisting the ordinary shares from the Kazakhstan Stock Exchange. Judging from the press reports, all this is to happen on May 11, 2018.

In general, the market and the rating agencies view these events in a positive light, For example, earlier, S&P Global Ratings had confirmed the long-term corporate ratings of the KazMunayGaz company and its affiliated RD KazMunayGaz company (BB-with the stable prospects). They also confirmed the company’s national rating (kzA-).

Here is a quote from the S&P Global Rating press release.

“Confirming KNG’s ratings reflects our opinion that the possible access to the resources on the RD KMG balance after the buyout of the minority shareholders’ shares and also the oil price growth and the expected completion of the key capital project will allow KMG to improve its credit characteristics. Apart from that, we expect that the recent prolongation of the deadline for the option to buy out the share in the Kashagan project to 2020-2022 will ensure the additional flexibility of the company”.

“Earlier, we assumed that the large monetary resources on the RD KMG balance (about $4 bln) were not directly accessible for servicing the debt at the parent company level. According to our current estimate, about $2 bln of the monetary resources on the RD KMG balance will be used for buying out the shares of the minority shareholders whereas the largest part of the remaining $2 bln will become accessible for KMG. Therefore, when calculating the corrected KMG debt, we will substract the resources available for paying off the debt of the parent company”.

Thus, one can start congratulating KazMunayGaz Chairman Sauat Mynbayev who was able to solve one of the key problems that were interfering with the reforming of the quasi-state agency and adapting it to the new macroeconomic and domestic political situation that had drastically changed for the past ten years. Of course, the victory may turn out to be the “pyrrhic” one and Sauat Mynbayev may soon be asked to retire from his post.

The possibility (or, more likely, the inevitability) of this scenario can be confirmed by the fact that Mynbayev’s key opponent Timur Kulibayev, the head of the Atameken Research and Production Enterprise and the husband of Nazarbayev’s second daughter, after the behind-the-curtain fight of many months, was finally able to assert his interests.

The thing is that the bulk of the GDR that RD KazMunayGaz listed at the LSE in 2006 turned up in precisely his hands. Later, a part of these GDR equal to 10% of the total number of the issuer’s ordinary shares was sold by Kulibayev to his Chinese partners.

For this exact reason, Sauat Mynbayev’s attempts to buy the ordinary shares and the GDR of RD KazMunayGaz for a lower price met with such a unified and a rather effective resistance on the part of the board of the latter. Back in the day, this subject was discussed in the Kazakhstan press in detail (in this article, for example – ССЫЛКА НА СТАТЬЮ). As a result, the KazMunayGaz management had to seriously adjust its offer. Consequently, the buyout of the RD KazMunayGaz shares from the market (i.e. mostly from Timur Kulibayev and his Chinese partners) is happening at the prices that practically correspond to those of the initial 2006 LSE listing.

To prove this fact, we will quote the KASE announcement of that time.

“The Rasvedka Dobycha KazMunayGaz company (later referred to as RD KMG), on of the leading oil producers in the Republic of Kazakhstan, announces the successful completion of the GDR and ordinary shares listing among the investors (the “Global listing”) with the GDR price amounting to 14.64 US dollars and the ordinary share price amounting to 11163.39 tenge (named together as “The Price of the Global Listing”).

The global listing consists of 23 086 791 newly issued ordinary shares offered by the Company together with 3 463 019 existing ordinary shares that are being listed by the underwriters acting on behalf of the KazMunayGaz national company for the purpose of stabilizing the market after the listing. The shares are listed in the form of the GDR (i) and the ordinary shares (ii) that are already listed at the Kazakhstan Stock Exchange. One ordinary share equals six GDR.  

Based on the Price of the global listing, the volume of the Global listing before the shares listed for the purpose to stabilize the market amounts to approximately 2.0 bln US dollars (approximately 258 bln tenge) which will ensure the market capitalization (not counting the preference shares) in the amount of approximately 6.2 bln US dollars or 784 bln tenge”.

Therefore, when, in the beginning of 2018, the Forbes-Kazakhstan magazine named Timur Kulibayev the best businessman in the country, it was not bending the truth too much. Timur Kulibayev was able to accomplish what the other Kazakhstan entrepreneurs could not – he got back his investments even though, for the past 12 years, the world oil market had changed tremendously. Of course, he was able to do it only thanks to his family connections… But these are just details.