'Chance for Kazakh capital markets to grow and diversify' by Clare Nuttall

BNE BusinessNewEurope

September, 2008

In less than three years, Almaty- based Visor Capital has put together a 55-strong team providing a full range of investment banking services. Now, as former head of research Michael Carter takes over as CEO, the firm prepares to embark on a new phase of development both at home and abroad.

Two and a half years ago, when Carter's predecessor Michael Sauer set up in Almaty, Visor consisted of "one man, a laptop and some money." Today, it has a thriving brokerage business, and a corporate finance team that proved itself working on the IPO of KazMunaiGas E&P before going on to work on other high- profile transactions, including Kookmin Bank's acquisition of a stake in Bank CenterCredit. Visor was the exclusive financial advisor on the $634m transaction.

Carter himself was, until July 25, head of the firm's eight-member research team. Like the rest of the operation, the research department, which Carter set up 18 months ago when he joined Visor, grew rapidly. "We are recognized as having the only local research product in Kazakhstan," he points out.

Visor also has an office in London where in November it became the first Kazakh brokerage house to obtain a Financial Services Authority license. Visor Capital UK became a member of the London Stock Exchange earlier this year. "Why the London effort?" asks Carter. "A lot of emerging mar­ kets investors are based in London, so having a sales effort there - we recently recruited Blair Pollock from Citi - helps us attack our investor base better."

Both Carter and Pollock, who joined in April, are recruits from international investment banks. 13 of Visor's team are expats who bring international capi­ tal markets expertise to the firm; the remainder are Central Asians. "The key to our success is to develop local exper­ tise," says Carter. Visor eschewed trying to headhunt from Moscow investment banks - "an unaffordable place to look," according to Carter - instead focusing on picking up good local recruits and training them.

Carter himself hadn't considered a career in Kazakhstan until he got a call from Visor's head-hunters. At the time, he was working for ING Bank in Milan , where he was head of equity and research. Originally from the US, he has spent most of his working life abroad, and speaks several European languages - though hadn't learnt Russian until he moved to Almaty. When he got the call, Carter says, "Like most expats my first reaction was 'no'. Then I talked to Michael Sauer who persuaded me to come here to make an informed 'no', which turned into an informed 'yes'."

"I could be looking out of Canary Wharf at the grey clouds," he jokes, gestur­ ing out the office window at the jagged peaks of the Zhalaisky Ala-Tau moun­ tains against the piercing blue Central Asian sky.

More seriously, he says, the chance to be a pioneer in a new market was an attraction. "It's a very early stage mar­ket, very under-brokered, and investors are eager for our services," he says.

"I had spent 12 years with West Europe businesses which are very different in terms of what one can do to add value." Unlike the well-trodden tracks in the West, "at Visor we are helping to develop the capital markets and create a capital markets labour force. We are not beholden to corporate policy. Instead, we are at the forefront of making changes. For example, when working on the KMG E&P IPO we were able to get the govern­ ment to change three laws - can you imagine doing that in the UK?"

Laws of liquidity

Visor continues to be actively involved in helping to develop Kazakhstan's financial markets. Crucial to the growth of the country's capital markets, Carter says, is increasing liquidity. Some steps towards achieving this are as simple as bringing the Kazakhstan Stock Exchange (KASE) into line with the three-day settlement rule that prevails in most stock exchanges.

Other potential changes include the introduction of a minimum free float for companies on the KASE, and the loosening of constraints on Kazakhstan's pension funds. "At the moment, they are mostly buyers and holders of Kazakh stocks. They absorb liquidity rather than help generate it," Carter says. "The government is interested in developing the capital markets here, and is thinking hard about what it can do in this area."

The entry of Moscow-based investment banks Renaissance Capital and more recently Troika DiaLog into the Kazakh market means more competition on the corporate finance side but, Carter says, is good from a brokerage point of view. "There's space for everybody especially on the brokerage side. Having more participants will increase market vol­ umes. It also proves we are right in our belief that the market is alive!"

The difficulties the banking sector is experiencing could be another blessing for Kazakhstan's capital markets. With cheap credit cut off, more companies from a wider range of sectors may start looking to the capital markets to raise money instead.

At present, liquidity among Kazakh stocks is almost exclusively Limited to the banking sector and natural resourc­ es sectors, with a few exceptions such as property developer Chagala Group and Steppe Cement. Carter points to recent developments such as Astana Motors' announcement it will seek a Listing in 2009. "We could see a diver­ sification of the market which is a very healthy thing- at least because when some stocks are out of favour - like banking after August 2007 - there will be alternatives."

In particular, there could be new entrants to the stock market from the agricultural sector - Kazakhstan is the world's fifth largest exporter of grain and the sector needs capital to grow. The commercial real estate sector, which weathered the crisis that hit residential real estate and shows strong long-term growth potential, could be another source of future listings. "Real estate projects may start to be financed through the capital markets. So could some of the smaller industries - not start-ups but companies at a stage in their development where they need funding. And we expect to see more consumer sector exposure with IPOs such as Astana Motors."

As he takes the helm at Visor, the overall picture that Carter draws of Kazakhstan 's economic prospects is a very positive one. Despite the turbulent 12 months that have just passed, "the picture is very resilient" he believes.

There are also several factors that make Kazakhstan a more appealing market than Russia. Visor frequently has to explain to international investors the factors that distinguish the two markets. "With their common heritage, they can look the same from London or New York ," notes Carter "However, Kazakhstan has an open legal regime for share­holders, a favourable regulatory system and it will soon have the new tax code."

Although based in Almaty, Visor has already done business in several CIS states, and doesn't see itself as a purely Kazakh operator. "We have always seen ourselves as a Central Asian invest­ ment bank," says Carter. "We have done corporate finance work throughout the region, in Kyrgyzstan, Uzbekistan and Tajikistan as well as Russia and Belarus ."

Today, the firm is "looking actively" at Uzbekistan , which after Kazakhstan is the largest market in Central Asia, though lags well behind its neighbour in terms of market size, regulation and transparency, and opportunities for investors. Setting up in Kyrgyzstan, Turkmenistan or Tajikistan is not on the agenda at present due to the small size of all three markets. However, Visor is looking more broadly at the CIS. It does not plan to compete in Russia but may, for example, move into Ukraine, Georgia or Azerbaijan. "We wanted to be the best local investment bank, and we are doing what we set out to do," says Carter. "If we see the right opportunity to move in and be a credible presence on the local market, we will go for it." •

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