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Major Samruk Transformation Details Unveiled by Fund Chairman

 

The transformation of Kazakhstan’s Samruk Kazyna Welfare Fund will see a redistribution of responsibilities within the fund and changes to its portfolio structure and approach to investment, Chairman of the Board of Samruk Kazyna Umirzak Shukeyev said in a recent interview. The reform will require internal changes, including personnel training and seeking out foreign expertise, as well as legislative changes in Kazakhstan.

Samruk Kazyna’s transformation programme, which is expected to modernise Kazakhstan’s economy and add $11 billion to the country’s gross domestic product by 2020, was unveiled at a privatisation forum on Oct. 6.

Building a stronger board of directors that includes international experts is one key change. “The fund needs to strengthen its board of directors, involving international experts and providing them with full decision-making power. The fund also needs to significantly optimise interaction with government bodies, shifting the focus from statistical reporting to business activity,” Shukeyev said in an Oct. 27 interview. This will require changes to Kazakhstan’s business legislation and a review of tariff regulation, he said.

Fund personnel are also going to be directed away from the government and toward private industry, he said, as in successful peer funds employees spend at least three quarters of their time increasing the value of existing portfolio companies and finding and managing new projects, he said. “In Samruk Kazyna at the moment, 60 percent of industry employees’ working time is devoted to building up relationships with government authorities. Therefore, in order to improve the quality of asset management, the fund needs to reorient industry-specific teams to work more to add value to existing portfolio companies and develop new projects.” This will involve retraining existing employees and hiring new, highly skilled professionals with international working experience.”

Shares in 106 companies worth $9 billion, including some shares in strategic assets, have also been put up for sale as part of a massive privatisation process. Fourteen companies are currently up for sale completely.

As long as they adhere to procedures enshrined in Kazakhstan’s legislature, foreign buyers will be able to purchase shares in strategic assets, Shukeyev said on Oct. 27, though there may be legal restrictions to ensure national security.

“Four national companies, including KEGOC (the Kazakhstan Electric Grid Operating Company), Kazakhstan Temir Zholy, Kazatomprom and Samruk-Energy, will come into the stock market in the framework of the People’s IPO programme. In addition, we are going to attract strategic investors to the Kazakhstan Engineering Company, 49 percent of the shares of which will be put up for sale as well,” Shukeyev said.

Samruk Kazyna intends to use the income to invest in innovative companies and technologies, with an emphasis on energy, mining, petrochemical, real estate and development businesses, Shukeyev said.

International best practices are guiding the transformation process, Shukeyev said. “The fund’s transformation process started with the study of international experience and comparative analysis. Among the success stories of transformation are the sovereign wealth funds Mubadala, Khazanah, Temasek, as well as the Sberbank, La Poste and Statoil companies.”

Singapore’s Temasek Holding, for example, increased its profits through restructuring its portfolio to follow a “Yellow Pages rule” that kept it from interfering too much in the private sector and bringing in more professional management.

“Since 2004, Temasek has been actively committed to building a professional investment holding company that would work in emerging markets, with more than 14 industry clusters and global geographic coverage,” Shukeyev said. The holding began investing around the world and now 69 percent of the company’s assets are overseas, he said, and in five years, the portfolio grew from $54 billion to $170 billion.

Transformations like those are informing Samruk Kazyna’s shift. “Even minor optimisation of operating expenses by 2 percent will save 90 billion tenge (US$49.75 million) in the Samruk Kazyna group of companies, while the fund is setting more ambitious goals,” the chairman said.

 


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