Samruk-Kazyna - Presentation as at 8 November 2011

Samruk-Kazyna Sovereign Wealth Fund

2

STATE-OWNED ENTERPRISES: KAZAKHSTAN’S CASE

Population of Kazakhstan

• World’s 62nd population with 16,5m people

• Among CIS countries, takes 4th place after Russia (143m), Ukraine (46m) and Uzbekistan (27m)

• Urban population – 54,3%, rural – 45,7%

• Relatively young population with 51,9% in the age of less than 30

• Fertility rate at 2,6 in 2010 with steady growth since 2000

• Ethnic structure: 63,1% - Kazakhs, 23,7% - Russians, 13,2% - others

• State language – Kazakh, Russian is also officially used

SAMRUK-KAZYNA

3

Around 130 ethnic groups

and 40 religions are

represented in the country

SAMRUK-KAZYNA

Territory of Kazakhstan

• World’s 9th largest territory with 2.7m km²

• One of the world’s least populated lands with density of 6 people per km²

• Located in the center of Eurasian continent with vast natural resources

• Total border with five neighboring countries – 12,185km that includes Russia (6,846 km), China (1,533 km), Kyrgyzstan (1,224 km), Uzbekistan (2,203 km) and Turkmenistan (379 km)

• Russian border is the longest single-segmented border in the world

• Divided into 14 regional provinces, the capital of Astana and the major city of Almaty

• Astana is one of the youngest (since 1998) and fastest growing capitals in the world

• Almaty is the financial and business center of the country

1,894km coastline with Caspian Sea,

the largest among all sharing neighbors

9th largest proved oil

reserves in the world

World’s 2nd largest

reserves of uranium, lead, zinc, chromium

World’s 5,6,7,8th largest reserves of copper,

iron, gold, coal, respectively

Political system

• Independence declared on 16th December, 1991

• Kazakhstan is a presidential republic with strong public support for President Nursultan Nazarbayev

• Parliament is composed of two houses – the Mazhilis and the Senate

• There are 9 registered political parties

• Prime Minister is head of the government

• Judicial branch represented by the Constitutional Council and the Supreme Court

• Priorities in domestic politics include economic growth, social and political stability, religious and ethnic tolerance

• Priorities in foreign relations include peace and integration initiatives, nonproliferation and counterterrorism support

• Kazakhstan chaired Organization for Security and Cooperation in Europe (OSCE) in 2010, Shanghai Cooperation Organization (SCO) in 2011 and a chair of Organization of Islamic Conference (OIC)

SAMRUK-KAZYNA

5

1400 nuclear

warheads renounced by Kazakhstan in 1990’s

Selected economic indicators (2010)

• GDP - $146,9bn, real economic growth - 7%

• GDP per capita – $9,000, GDP per capita (PPP) - $12,700, industrial production growth – 7.3%

• GDP composition: agriculture – 5.4%, industry – 42.8%, services – 51.8%

• Government budget – $30.3bn (20,7% of GDP), budget deficit – $3.6bn (2,5% of GDP)

• Export – $59.2bn, import – $29.8bn

• Export partners – China (16%), France (9%), Germany (8%), Russia (7%), Ukraine (6%)

• Import partners – Russia (29%), China (27%), Germany (7%), Italy (6%), Ukraine (5%)

• Unemployment rate – 5.8%, inflation (CPI) – 7.1%, central bank discount rate – 7.5%

• Accumulated FDI - $141bn

SAMRUK-KAZYNA

6

$193,3bn Kazakhstan’s GDP (PPP) by

IMF estimates for 2010

0

40 000

80 000

120 000

160 000

2006 2007 2008 2009 2010

$ mln

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Nominal GDP Real GDP growth

The Kazakhstan–2030 Strategy • Adopted in 1997 as a set of the long-

term strategic priorities for Kazakhstan’s future development

• One of the fundamental ideas of the strategy is to use the country’s vast natural resources for the good of the people

• The strategy implied emergence and active role of prominent state-owned enterprises (national companies) in implementing the long-term priorities

7

SAMRUK-KAZYNA

Seven strategic priorities: - national security - political stability - economic growth - social wellbeing - use of energy resources - infrastucture development - professional government

Rapid economic growth in 2000’s • Companies in extractive

industries, particularly oil and gas production and mining, were the growth engine

• In 2002 Kazakhstan was first among all former Soviet Union countries to receive an investment-grade credit rating

• Leading Kazakh companies adopted highest international standards in their business practices, the country’s banking system considered the best in CIS

• Kazakhstan is among Top-20 economies in terms of attracting investments (according to IMF)

8

SAMRUK-KAZYNA

9-10% average annual economic growth rate between 2000-2007

FDI Inflows, $m

Balancing economic development • With high economic growth, the government started to articulate

the necessity for sustainable development and balancing the economy out of dependence on natural resources

• In 2000, Kazakhstan created a national fund that accumulated financial resources coming from export of hydrocarbons

• Development institutions were created including Development Bank of Kazakhstan, Investment Fund of Kazakhstan, National Innovational Fund, Entrepreneurship Development Fund

• In 2003, Kazakhstan adopted the Industrial and Innovational Development Strategy until 2015

• In 2006, state-owned holdings system was introduced with Samruk, Kazyna, Samgau (later reformed) and KazAgro to become locomotives of growth

9

SAMRUK-KAZYNA

10

SAMRUK-KAZYNA

Overview of Samruk-Kazyna SWF • Kazakhstan's largest state-owned holding

company

• Manages the state's assets in oil-and-gas, energy, transportation, telecommunication, financial and innovation sectors

• Largest buyer of goods and services in

Kazakhstan

• Board of Directors chaired by Prime Minister

• Acts under a separate law providing special status and rights

$13.5bn procurement contracts concluded in 2010

404 subsidiaries and companies under control

$77.8bn consolidated total assets

53% assets to Kazakhstan’s GDP

Overview (continued) • Established in October 2008 in the midst of the global economic crisis

through a merger of two state-owned holdings, Samruk (State’s Assets Management Holding) and Kazyna (Sustainable Development Fund)

• Aimed to sustain the development of national economy and stabilization of financial system

• Defines strategy for state-owned companies and is the main instrument for implementation of government policies

- Key player of the industrial and innovation development program - Promotion and implementation of large-scale investment projects

for diversification of the economy - Implementation of efficient corporate governance according to the

best international practices in corporate management and financial control - Efficient tool in implementation of the anti-crisis program

11

SAMRUK-KAZYNA

SAMRUK-KAZYNA

Over $57bn assets under management in the industrial sector

Additional liquidity allows to implement industrial and innovational development program via investment projects exceeding $22bn

12

SAMRUK-KAZYNA

Broad representation in the financial sector via largest development institutions and commercial banks - over $27bn assets

Substantial capital base gives access to financing from international financial institutions

13

Portfolio companies

Samruk-Kazyna participates, either in whole or in part, and coordinates strategies across more than forty direct subsidiaries, largest of which:

SAMRUK-KAZYNA

14

SAMRUK-KAZYNA

KazMunayGas (100%) • Vertically integrated national oil-

and-gas company • Unique advantages based on the

status of SOE • Dominant position in the

downstream sector – refining, marketing and transport

15

$15.5bn Revenue in 2010

24% of all oil-and-gas production in Kazakhstan

Kazakhstan Temir Zholy (100%) • Vertically integrated national railway

transportation operator • Owns and operates main railway

network throughout the country • Dominant position in the sector –

freight and passenger transportation services


80% of Kazakhstan’s total freight transport

SAMRUK-KAZYNA

16


55% share of uranium production in Kazakhstan


35% of Kazakhstan’s tele-communication market

Kazakhtelecom (51%) • National telecom operator • Owns and operates major backbone

networks throughout the country • Dominant position in the country's

fixed line and internet segments • Covers all main telecom consumer

markets

KazAtomProm (100%) • National atomic company • Unique advantages based on its SOE

status • Controls all uranium exploration,

mining, export and import activities • Active cooperation through JVs with

world’s leading uranium companies in Japan, Canada, France and China

SAMRUK-KAZYNA

17

$660m Revenue in 2010

76% & 36% of domestic and international passenger airtraffic in Kazakhstan, respectively


19% of Kazakhstan’s total power generation

Air Astana (51%) • National air carrier, a JV with British

BAE systems (49%) • Serves 22 domestic and 29

international destinations • Operates one of CIS region’s youngest

fleets • Full member of IATA

Samruk-Energy (94.4%) • Consolidates state assets in power

generation segment • Operates major power plants

throughout the country • Owns 50% of Bogatyr Komir LLC,

largest domestic coal producer • Dominant position in the open

electricity market

SAMRUK-KAZYNA

18


24.4 th.km of transmission lines in Kazakhstan


22% of total market consumption in Kazakhstan

KEGOC (100%) • National Operator of Power Grid • Owns and operates main power

transmission lines and 74 substations

• Consistent revenue growth due to persistent regional misbalance of power supply and demand

SK-Pharmacy (100%) • National medicine distribution

company • Dominant position in procurement

and distribution of medicine to governmental healthcare entities

• 49% share of local producers in company’s procurement

SAMRUK-KAZYNA

19


68% of postal services market in Kazakhstan


$73% share of copper in 2009 revenue

KazPost (100%) • National operator of postal

communication rendering postal and financial services

• 54% of the revenue comes from financial services

• Most developed and accessible branch network throughout the country

Kazakhmys plc. (26%) • World’s leading copper producer • Listed on London Stock Exchange • Also produces silver, zinc, gold

SAMRUK-KAZYNA

20

$1.5bn Planned revenue in 2015

$5bn investment program in 2011-2015

1mt of phosphate fertilizers by 2017

500kt of polypropylene production by 2014

Tau-ken Samruk (100%) • State-owned mining company with pre-

emptive rights • Access to extensive mineral base data

and over 300 unlicensed blocks • 67% share of gold in planned revenue in

2015

United Chemical Company (100%) • National chemical company founded in

2008 • Consolidates state assets in chemical

sector • Unique advantages based on the status

of SOE • $7.5bn portfolio of projects

SAMRUK-KAZYNA

21

$7.4bn assets of Development Bank of Kazakhstan

$500m equity funds under management

Development institutions • Provide complete investment

approach via its debt and equity financing arms

• Development Bank of Kazakhstan (100%) is the largest development bank and plays dominant role in debt financing of strategic investment projects

• Kazyna Capital Management (100%) and Investment Fund of Kazakhstan (100%) are equity investors in innovational and development projects

Mining23%

Agriculture15%

Oil & gas12%

Transport

9%

Energy8%

Textile

8%

Construction6%

Other19%

Development bank loan portfolio by sector

in 2010

SAMRUK-KAZYNA

Commercial banks • Samruk-Kazyna is a shareholder in

five leading commercial banks: BTA Bank (75%), Alliance Bank (67%), Halyk Bank (21%), Kazkommertsbank (21%) and Temirbank (80%)

• Commercial banks provide substantial support to small and medium size businesses, mortgage and consumer finance

60%

affiliated banks’ share in banking sector’s total assets

$41bn total loan portfolio of affiliated banks

22

Kazkommertsbank 21%

Halyk Bank16%

BTA Bank16%

Alliance Bank

4%

Temirbank2%

CenterCredit Bank10%

Other30%

$81 bnTotal assets in 2010

SAMRUK-KAZYNA

KazAgro

• Manages the state's agricultural companies, including:

- the National Food Contract Corporation (wheat trade)

- KazAgroFinance (leasing to farmers)

- Agrarian Credit Corporation

- Corporation on Livestock Development

- Fund of Financial Assistance to Agriculture

23

Parasat

• Stimulates the development of scientific research and domestic know-how in the high-tech sector

• Manages several scientific institutions and funds

National Medical Holding

• Implements business-oriented innovative corporate management in the newly built hospitals of Astana

Zerde

• National Informative and Communication Holding Company

• Develops modern information and communication technologies

• Stimulates investments and innovations in the communication sector

• Manages several scientific institutions and funds

Four other state-owned holdings

SAMRUK-KAZYNA

Industrial and Innovation Development • Samruk-Kazyna is the main operator of the government’s industrial

and innovational development program

• Portfolio companies account for $22bn of the program’s planned investments, or 51% of total

• Almost all key sectors of the economy are involved and scale of the projects will allow to have multiplicative effects

• The projects will result in improved refining capabilities, increased energy capacities of power stations, widened transport and transit potential, and overall diversification of the economy

24

SAMRUK-KAZYNA

25

Major projects under way

• Reconstruction and modernization of Pavlodar Oil Refinery

• Construction of deep oil-processing complex at Atyrau Oil Refinery

• Reconstruction and modernization of Shymkent Oil Refinery

• Construction of coal-fired Balkhash thermal power plant

• Electrification of Almaty-Aktogai, Aktogai-Moiynty, Aktogai-Dostyk railways

• Construction of a railroad connecting Almaty region with the Chinese border in Korgas

• Construction of the railway Beineu – Zhezkazgan

• Construction of a petrochemical plant in Atyrau

• Production of phosphate fertilizers in Zhanatas town of Southern Kazakhstan

• Production of high-quality fertilizers MAP/DAP in Ushbas and Geres

$1bn total project cost

$1.1bn total project cost




$1bn total project cost





Outside criticism of Samruk-Kazyna • State-owned companies enjoy better access to markets, credit, and

licenses than private entities

• Samruk-Kazyna spent its first two years managing the government's anti-crisis program instead of focusing on strategic issues

• Samruk-Kazyna is exempt from government procurement procedures and has the right to establish its own procurement rules

• The government can transfer to Samruk-Kazyna state-owned property, simplifying the process to transfer state property to private owners (i.e., state property can be easily privatized without any tender process or observation of privatization legislation)

• Standard&Poors assessed Samruk-Kazyna's transparency at 24 out of a possible score of 100.

26

SAMRUK-KAZYNA

Dualism of the goals • Samruk-Kazyna controls all major state-owned assets and is

expected to provide increase in their value

• Samruk-Kazyna has been a public policy instrument as the chief operator of government’s anti-crisis policies that included stabilization of financial and banking sector, and revitalization of the economy

• The challenge for Samruk-Kazyna is to find the right balance between pure commercial goals of maximizing the value of portfolio companies and responsibilities before the government to implement economic programs in modernization and diversification

• Samruk-Kazyna needs press further with implementing acknowledged corporate governance principles based on highest international practices which will result in a more transparent decision making processes

27

SAMRUK-KAZYNA

Upcoming plans:

• Raise portfolio companies to the status of “champions” of the national economy with capability:

- to introduce and adopt innovations

- to implement complex and high-degree projects

- compete on the regional and global markets

• Launch “people’s IPO” of selected portfolio companies:

- to give the Kazakh stock market a stimulus

- to provide domestic households with investment opportunities

• Increase the management efficiency of portfolio companies:

- by developing corporate documentations and regulations

- by implementing strategic decision making procedures

- by adopting accurate assessment criteria

SAMRUK-KAZYNA

28

29

THANK YOU!

Documents

Samruk-Kazyna - Presentation as at 8 November 2011