EKONOMIKA: Over three months ago, the President of the Kyrgyz Republic enacted Decree No. 376 «On measures for the further development of the stock market and exchange activities,» which directly impacts the Kyrgyz Stock Exchange. How is the implementation of the Decree’s provisions progressing? Specifically, how is the transfer of government securities trading to the KSE going? What about the launch of the precious metals sector? The development of the commodity sector? Will small-cap start-ups be allowed on the exchange?
M. NAZARALIEV: The first similar decree was signed in 1999. The second one was signed 23 years later. In the preamble, the head of state emphasizes that our stock market is not sufficiently developed for businesses to actively attract investments or for citizens to invest in order to grow their funds. Several key measures have been identified for the development of the KSE: elevating the exchange’s status as a national institution that develops government projects, digitalizing all services in the stock market, conducting a national IPO of state-owned companies so the public can buy shares of the best state-owned companies and receive dividends, transferring government securities to the exchange to allow the public to invest in 100% protected securities with the state as a guarantor, and launching the precious metals sector, which is already becoming universal. Until recently, the stock exchange only traded stocks and bonds, but today, we are moving towards full universalization, encompassing the entire range of financial instruments.
How is this decree being implemented?
The Presidential Administration is developing an action plan to execute this decree. Performers will be assigned to each item. Then, with the support of the Cabinet of Ministers, we will implement the decisions made.
Regarding the launch and transfer of two types of government securities to our platform (two-year government treasury bonds and 12-month STB), we are actively collaborating with the Ministry of Finance to place and circulate these government securities through the exchange in May. Then, all Kyrgyzstanis will be able to purchase these government securities directly through the exchange participants.
As for the precious metals sector, we have already signed an agreement with the National Bank of the Kyrgyz Republic. Gold measured bars are quoted on our site. An agreement was signed with the Department of Precious Metals under the Ministry of Finance. We expect trading in gold to begin in mid-March, with the Department of Precious Metals acting as a seller. Jewelry companies are anticipated to be the main buyers, as they are most in need of acquiring gold at the exchange price. These initiatives are in the active launch phase.
The commodity sector was initiated in 2018, but it has not received adequate attention and support since then. Towards the end of last year, we reactivated this sector. Transactions involving sugar and beet molasses amounted to 750 million soms. Currently, we are negotiating with other companies to become bidders. This is to ensure that our domestic producers gradually shift their focus to selling their goods through the stock exchange.
Will small-cap start-ups be allowed on the exchange?
There is a resolution approved by the Cabinet of Ministers that outlines the minimum listing requirements for the first and second categories in terms of authorized capital and profitability. As for other categories, we regulate them with our listing rules. Currently, we have four categories.
The highest category requires at least 300 million in equity capital, a net profit for the last year or over three years, and other fairly high requirements. The second category requires no less than 50 million in equity, with the company also needing to be profitable and provide an audit report for the last three years.
The third category is the simplest, requiring equity of at least 10 million and the provision of an audit report. Profitability is required from the third year of listing. A newly established company may qualify for this category.
There is also a new category called «SPAC» for those who create a new company to accumulate funds to buy more than 50% of another company. The SPAC instrument is very popular in developed stock markets. Additionally, we are considering a new category for start-up companies seeking funding. Efforts are being made in this direction, as we have many start-up companies in Kyrgyzstan looking for venture and direct investments, receiving evaluations, and accelerating. The KSE aims to assist in this by creating a start-up platform.
Should investors expect the listing of the most interesting enterprises of the Kyrgyz economy this year? The Kumtor mine? «Megacom»? «Kyrgyzaltyn»?
Good question; you listed the companies that everyone is talking about. We do not expect them to be listed on the stock exchange this year. Megacom is a CJSC, and shares can only be traded publicly with an OJSC. Negotiations regarding the Kumtor mine entering our or international stock exchanges have not yet been held. Kyrgyzaltyn is already listed by the KASE, but it is still a 100% state-owned company with no free share of shares for sale.
I think that with the issuance of the presidential decree, each large state-owned company will consider attracting investments through stock market instruments when evaluating its development strategy. Naturally, if these companies express interest in entering our stock exchange, we will actively assist them in placing their securities with us.
And besides these companies, are there others that may be of interest to investors?
There is a large list of highly liquid stocks on the Eurasian and American developed stock exchanges. These companies are well-known, and many Kyrgyz people buy their securities. After all, the whole world uses their applications, products, or software. Unfortunately, Kyrgyzstan cannot boast a similar list of highly liquid securities, but we have our own attractive companies, such as Manas Airport. Airport shares are actively traded on the secondary market, with a significant increase in value occurring in 2022.
We have many undervalued companies that have not received proper stock valuation. If you look closely, you can find companies that pay good dividends and have an increase in the value of shares. Among state-owned companies, there are many such attractive firms, but they have too little share of free circulation on the stock exchange and are relatively unknown.
There are private companies that are very active, such as Bishkek Sut and energy companies, but they, unfortunately, cannot boast of large dividends as the energy sector is going through a crisis stage. However, they have great potential. There are state-owned banks on our listing, but again, they are 100% owned by the state. We are now working to bring the best state-owned companies to the stock exchange.
We have many companies that issue corporate bonds. Our corporate bond instrument is highly developed. Typically, an investor’s journey on the stock exchange begins with corporate bonds, and then they move on to mastering the stock market.
In 2022, due to the events in Ukraine, the Russian stock market infrastructure was cut off from the global stock market, even though it was previously the most progressive and high-quality in the region. Moreover, the Russian infrastructure not only served Russian investors in the Russian market, but also successfully worked with investment flows from the entire Eurasian region. In your opinion, are there any prerequisites for investors to start using the Kyrgyz exchange infrastructure for their global investment operations? What needs to be done?
The state has actively supported us over the last year. It has become clear that without developing our own stock market, it is impossible to rely on attracting large, professional investors. External investors assess how developed the domestic market is, how much the population invests in their own domestic companies, and how the population’s money contributes to the country’s economy. These are simple mathematical indicators that every investor pays attention to.
If no work is done in this direction, then no matter how much we boast about our mountains, lakes, and natural beauty, in reality, we can miss many opportunities. And, of course, our securities market infrastructure, to be honest, has significantly lagged behind neighbouring countries in terms of securities market development.
Investors also pay attention to our market, but neighbouring markets are much more developed, and unfortunately, investors are drawn to these countries. This is because we didn’t take the time to build a regulatory framework that meets international capital market standards and develop the necessary infrastructure. We needed to establish direct outlets for foreign securities to circulate freely and allow for the free admission of foreign securities to our country for secondary circulation. It was essential to work closely with international brokerage companies, encouraging them to open branches here, become bidders, and create favourable conditions for them.
This would have increased our potential. In the event of any changes in the world, Kyrgyzstan could have become the first attractive country, given that we have the most liberal legislation. But, unfortunately, we are not yet the main country to which investors pay significant attention. Kazakhstan and Uzbekistan are far ahead.
The issuance of the decree, the order to transfer new securities to the stock exchange, the precious metals sector, and new support have all been beneficial. We are observing how new companies receive brokerage licenses from our regulator. More companies are becoming interested in how to become a bidder. In order to meet the requirements of foreign participants, we have started improving our infrastructure to meet international standards.
I think that in the next three years, our securities market’s development will increase significantly, and the stock exchange will finally become a driver for the country’s economic development. The number of participants issuing corporate bonds is growing, and the understanding of the market by businesses and the public is increasing. People have started independently learning about proper investment strategies and searching for new ways to invest. If we, on behalf of the stock exchange and the state, cannot provide a new wave of investors with high-quality financial instruments, then money will flow out of our country. We must actively work in this direction.
What are the further plans for KSE’s development until the end of the year?
This year, Kyrgyzstanis will have the opportunity to buy securities through a mobile application. Green finance instruments are being actively promoted to form a pool of responsible investors. Our immediate plans are to make the KSE de facto and de jure a universal, national platform where people can buy shares, bonds, raw materials, and precious metals. We aim to create a platform that will be interesting to both observe and participate in.
We cooperate with all stock exchanges in the CIS countries, have initiated cooperation with the Mongolian Exchange Fund, and are establishing working relations with stock exchanges in Dubai and Budapest. In general, we are expanding the geography of cooperation with the KSE.
Interviewed by Saadat Asanova