Why AtyrauNefteMash became the first customer of DBK Equity Fund

I was finally convinced in the fact that Sagat Tugelbayev is an unusual Kazakh investor

He does not invest in real estate in the United Arab Emirates, does not build shopping and entertainment centers (click for data). A few days ago, the owner of AtyrauNefteMash (AMN) surprised that he "admitted" another "comrade" (ANM in the form of a limited liability company) in his company. All Kazakh businessmen try to avoid this, fearing losing control over their companies (nobody canceled raiding). But behind the apparent surprise of the transaction, again there is a rationale: companies with large professional investor in their capital (and even with state participation) may become interesting for larger international investors. And the fact that AMN is considering a chance to attract a foreign strategic partner, Sagat Tugelbayev did not conceal from the first meeting (click for data).

ANM became the first customer of DBK Equity Fund CV - a private equity fund established by subsidiaries of Baiterek Holding. Development Bank of Kazakhstan (DBK) is the anchor investor of the Fund with a 97% equity stake and Kazyna Capital Management (KCM, with a 3% stake) will manage the assets of the Fund.

Capital of DBK Equity Fund is formed in tenge, so that its customers are less worried about currency risks. Initial capitalization will amount to KZT 33.5 billion. Additional capital of DBK will be contributed when the fund finances new projects. Moreover, DBK Equity Fund will finance the existing and potential projects of the Bank.

It is no coincidence that Sagat Kashkenovich signed the Term Sheet in the building of DBK for investing it his company. The Development Bank previously provided a long-term (up to 14 years) KZT 10.6 billion loan for expansion of the plant's capacities under the New Industrialization state program. But the Company lacked working capital and Mr. Tugelbayev informed the managing director of DBK Adil Ismagambetov last October during a press tour in the Atyrau plant (as Mr. Tugelbayev told then: “They gave a little bit less”). And now they have in full - up to KZT 1 billion for requested purposes of ANM, DBK Equity Fund provided capital through participation in the company's capital.

ANM and KCM are good for each other

Askar Dostiyarov, Chairman of the Management Board of KCM said that private business should not be afraid of professional investors with participation of the state at yesterday's press briefing. He did not hide that “to date the Private Equity instrument is relatively new (for Kazakhstan), and many entrepreneurs are cautious about it”.

- I would like to note that the fund is not intended and not established to gain control over activities of companies, assured the investment banker. And in support of his words he paid attention that DBK Equity Fund's “lifetime” is no more than 10 years. This is perhaps one more reason why the owner of ANM “admits” the fund into capital of its company - after several years DBK Equity Fund (before the end of its “life”) will have to exit from participant structure (with a predetermined profitability). Investment horizon of the fund is from 3 to 7 years.

For myself I realized: in fact, AtyrauNefteMash is as good for Kazyna Capital Management (as a fund’s manager) as Kazyna Capital Management is good for AtyrauNefteMash. Oil production is growing at the largest Kazakhstan deposits (Kashagan, Tengiz, Karachaganak). The plant does not experience a shortage of orders, the contracts for supply of oilfield equipment have been signed with such major subsoil users as Tengizchevroil, NCOC, KPO etc.

KCM and ANM are united by one goal - to make the machine-building plant attractive for investment from major companies of the global oilfield service. If all goes well, ANM will find a strategic partner with the most modern technologies, DBK Equity Fund will successfully exit the asset, gaining a good return on its investment.

What advantages we gain by using Private Equity?

Bolat Zhamishev, Chairman of the Management Board of the Bank tried to clarify at the press briefing “Why does DBK establish a private equity fund”. With his characterized thoroughness, he listed the reasons (obvious to any financier, but not obvious to any non-financier):

- Of course, the Bank may provide debt financing. But with regard to debt financing there is a restriction for a borrower - if he has a lack of capital he cannot attract any loans - money is needed in equity. Second, it may not have enough collateral. And in order to get a loan you need to have sufficient collateral. When entering the equity the collateral is not required. The third factor: for a bank if it itself enters the equity it would be necessary to participate in the management of a company. But for this, a bank will need to create a special department and a special function. Kazyna Capital Management and its Funds are specialized companies that deal with this. After transfer of this function to KCM, we do not incur unnecessary costs associated with the need for management. The fourth is mezzanine financing, where a part of the loan may be "turned over" into equity. And the fifth: constant participation in capital in the classics of finance is a riskier investment than debt financing. By financing through a specially established fund, we do not consolidate these risks in our balance sheet.

The first question raised at the press briefing (and it was asked by the representative of business publication) demonstrated that the Private Equity industry where DBK Equity Fund is a part is even less understandable for many in Kazakhstan than such new-fangled words as "blockchain", "crypto-currency" or "IPO". "What advantages we gain by using Private Equity?" - flashed across the faces (and not only the press) present at the press briefing.

- It turns out that in 10 years the fund will be closed? If it is successful why to close it? - asked a young man from the hall at the very beginning of the press briefing. Such ignorance of peculiarities of the Private Equity industry is really forgivable. The level of understanding of what the "Private Equity" is, even in a business environment is now the same as the idea of the stock market. Based on my experience I confirm: until you buy shares - you will not understand what the "stock market" is.

Askar Dostiyarov took the “Educational” part of the public event upon himself. He stressed that DBK Equity Fund was established in accordance with “the best international practice”.

“As a rule, private equity funds have a pre-agreed lifeperiod”, he said. This helps to “enter” some assets not in order to establish control but to “exit” from these projects after a certain period of time (with a certain investment return).

Author of the article: Daniyar Temirbayev who actually saw how the businessman shakes bankers’ hands (and does it sincerely)


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