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“Wall Street” of Almaty? Think more - Hong Kong of Central Asia! What is the RFCA’s role in developing Kazakh securities market?

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kazakhstanfinance | autumn 2007

The Regional Financial Centre of Almaty was set up by the Government of Kazakhstan during 2006 in Almaty, the financial capital of the country. The main objective of RFCA is to position Almaty as a financial hub of the Central Asian Region. The focus is on continuous development of the Kazakh securities market by applying the

best international practices and attracting international investors, issuers and renowned international brokerage houses. Kazakhstan’s banking system is considered as the best developed among the CIS countries - in September 2002 Kazakhstan became the first country in the CIS to receive an investment-grade credit rating from a major international credit rating agency.. The next step is to advance the development of the securities market, making it an important part of the financial system and one of the sources of investment capital in Kazakhstan and the surrounding region. Since most of the Kazakh investment capital is


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in the form of pension funds’ savings, mutual funds, and export proceeds of Kazakh companies, all of which are believed to grow further, these funds will undoubtedly become an important source of capital in the country. The RFCA’s regulators work on introducing the best international practices on regulation of the securities markets, which is aimed at attracting international investors, asset management and brokerage firms, being at the same time flexible to reflect the specifics of the developing market. The Agency on Regulation of Activities of RFCA (the Agency) plays an active role in encouraging issuers to accept best corporate governance practices, use international accounting standards, and accept transparency principles by including them in the listing rules of the Kazakhstan Stock Exchange (KASE). The Agency considers them important for international promotion of the financial centre, since compliance of companies would make issuers more transparent for investors. To promote international standards of auditing, the Agency offers a onetime reimbursement of expenses on audit, which potential issuers have to conduct when they seek listing their securities. Other incentives are tax exemptions for investors and brokerage houses doing business in Almaty. How will it be structured and what are the roles of its main bodies?

Activities in RFCA are regulated

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by the Agency of the Republic of Kazakhstan on Regulation and Supervision of the Financial Market and Financial Institutions (the Financial Supervision Agency), and the Specialized Financial Court. The core activities in the financial centre take place in the Special Trading Floor of RFCA, which is located in Kazakhstan Stock Exchange (KASE). A commercial arm of the financial centre is represented by “RFCA” Joint Stock Company (“RFCA” JSC). The Agency is the financial center’s regulator. Its main functions are state registration of the financial center’s members, assistance in obtaining visas by nonresident members, granting accreditation as members of the financial centre to existing Kazakh brokerage companies, explanation to the financial center’s members of their rights and duties, monitoring of the financial center’s members for compliance to Kazakh labor legislation, representation of the financial center’s interests in government bodies and other organizations, maintaining the state register of the financial center’s members, generation and implementation of activities related to the development of the financial center and the securities market infrastructure. The Financial Supervision Agency is responsible for supervising and monitoring of business activities of brokerage companies, securities issuers, investors, and the stock exchange for compliance to Kazakh securities market legislation. The Specialized Financial Court was set up to promote resolution of disputes involving participants of the financial centre. The activities of the commercial arm

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of the Agency - “RFCA” JSC are aimed at implementation of various projects for RFCA’s further development. The company is already working on establishing a local rating agency and the Securities Market Institute to train financial professionals in Kazakhstan. Since obtaining credit ratings from leading rating agencies, such as S&P, Moody’s or Fitch is quite expensive, it may be reasonable to initiate establishing in RFCA a national rating agency, to insure lower costs for lowand medium-size issuers. Who are the main players of the financial center?

Main players of the financial center are its members – brokerage companies, the key facilitators in the securities market. To obtain membership an applicant has to do three things. First, to register with the Agency as a legal entity. For existing brokerage companies, accreditation as a member is also available. Second, to obtain a brokerage license from the Financial Supervision Agency. Third, to establish a permanent office in Almaty. Accreditation in the financial center assumes granting to existing professional players of the securities market all rights that are available to the financial center’s members. In order to have access to the financial center’s trading floor, the members have to apply for membership at KASE. Recently, legislation amendments waived the former requirement. Now the financial center’s members may also exercise trades with securities on other stock exchanges, as well as on the unorganized securities market. By operating in RFCA, the center’s

kazakhstanfinance | autumn 2007

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involved in various projects to make various financial instruments tradable on the RFCA’s trading floor. What are the main advantages for non-residents at RFCA?

ALINA ALDAMBERGEN Deputy Chairman Born in 1973 in Karaganda Education: 1991-1995 – Kazakh State Management Academy, specialty ‘Finance and loans’; 1994-1995 – Finance and International Economy Program, Business Administration School, Washington University (Seattle city, Washington, the USA); 1996-1997 – MBA, specialization «Corporate Finance and Accounting», William E. Simon Business Administration School, Rochester University (Rochester, New-York, USA) Experience: 2001-2003 – ABN AMRO Bank N.V., London, Great Britain (leading rating consultant, Global Financial Markets Rating Consultant, Rating Consultations Department); 2003-2005 – JSC PAIMO «ABN AMRO Asset Management», Chairman of the Board, Board of Directors member; 2005-2006 – JSC «AJSB «ABN AMRO Bank Kazakhstan», Deputy Chairman of the Board, Head of Global Markets subdivision, arranging debt financing for CEE and ME countries (February-August 2006); Treasurer (April 2005 - February 2006); From October 2006 – Deputy Chairman of the Agency of the RK on Regulation of Activities of the Regional Financial Centre of Almaty city Additional data: From April 2004 – LEO ‘Kazakhstan Financiers Association’, Board member; From August 2003 – JSC ‘Kazakhstan Stock Exchange’, Exchange Council member; September 2003 - April 2005 – LEO ‘Asset Management Association’, acting Board Chairman.

members promote it among other issuers and investors. The staffs of the Agency and KASE is also

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kazakhstanfinance | autumn 2007

The financial center promotes the principle of equality among all its members. This means that the incentives provided are equally available to both residents and nonresidents. For members of the financial center, who must have a status as professional players of the securities market, income derived from rendering the following types of services is exempt from tax in Kazakhstan: buying and selling securities on behalf of clients, underwriting and market-making. Also, investors are not liable to pay taxes on dividends and coupon payments, received on securities listed in the financial center’s trading floor and capital gains realized within the financial center The incentive for issuers is a onetime reimbursement of expenses of auditing their business, which is conducted prior to listing their securities on the financial center’s trading floor. To be eligible for this incentive, the applicant should have no similar audit carried out before. What are the updates on the development of the Regional Financial Center of Almaty (RFCA)?

Currently there are 31 securities brokerage companies registered as members. As of August 22, 2007, 70 securities issues of 18 issuers are traded on the center’s trading floor, with total market capitalization of almost $17.7 billion. Since February 2007, when the trading floor began its operations, the volume of trades reached $385.3 million. An important aspect in the development of the RFCA was uniting two trading floors that emerged after establishing RFCA. Originally the RFCA’s trading floor was set up as a new trading platform and only brokerage companies – members of RFCA could be the traders. However, a much bigger and more liquid

market exists on the main floor of KASE. The Agency has promoted several legislation amendments to unite the main floors of KASE and RFCA. To boost liquidity all market participants will receive access to the newly created trading floor which is expected to be completed by the end of 2007. The Agency is carrying out active marketing programs aimed at attracting new issuers from Kazakhstan, surrounding regions, and international investors. Together with other state agencies, the Agency actively promotes the securities market among the Kazakh population by disseminating information, giving interviews, and publishing articles in the mass-media. The Agency also conducts various regional seminars in Kazakhstan, Russia, Ukraine and Azerbaijan. Why was Almaty chosen as a Regional Financial Centre?

Almaty, the former capital of Kazakhstan, has always been positioned as its center for business, education, research, culture, tourism and finance. There are more than 60 universities and the headquarters of many Kazakh companies are located in Almaty. Many financial institutions, such as local and foreign banks, pension funds, insurance, brokerage and asset management companies as well as major financial regulators - National Bank of Kazakhstan, Financial Supervision Agency and now, the newly formed Agency for Regulation of Activities of the Regional Financial Center of Almaty City have offices in Almaty. The Almaty city’s population is growing fast. To meet the demands of the growing economy, significant activities are taking place in such sectors, as construction , and development of the transportation infrastructure. New office buildings, hotels, restaurants, stores, and residential buildings are being erected. City streets are being widened, with modern multilevel transportation


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overpasses being built. An underground transportation system is also under construction. The financial institutions are also building a brand new financial district, where headquarters of main Kazakh banks will be located. RFCA is building a modern business center, which will provide first class office spaces for the financial center’s members and other businesses (auditing, consulting and law companies). The business center will also accommodate the Agency, the Specialized Financial Court of RFCA, and other organizations of the financial center. All these actions are considered to be important steps for making Almaty one of the most developed cities in the world. Modern ways of financing are as important as modern infrastructure. What are the modern solutions to financing infrastructure?

In Kazakhstan several types of financing are used for infrastructural projects. At present, the majority of financing is granted by the fast growing Kazakh banks. Some projects are financed by the state budget or with the government support. A vast majority of infrastructure projects (motor- and railroads, public utilities) are financed from the state and local budgets. However, like most developed economies financing infrastructure projects by issuing bonds becomes more and more popular. Usually, such bonds have long-term maturities and expose relatively low risks, since governments partially guarantee the performance of such projects. It should be emphasized that infrastructural bonds are especially well suited to investment strategies of pension funds, who seek long-term low-risks investments. A number of infrastructure bonds – specific instruments for project companies, which have a support from the government have been issued to finance infrastructure projects. For today two issuers

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placed infrastructure bonds mainly among institutional investors, such as pension funds. One of them is JSC «Doszhan temir zholy» and the other is JSC «Batys transit». These companies were attracted resources for building of railway and for building of line of electricity transmissions. List of projects which are realizing on the basis of governmental and private partnership was formed by the Government. Financing of these projects will be attracted both by means of credits, loans (including syndicated loans) and by means of issue of infrastructure bonds. How do Kazakhs view the Kazakhstan of the future? Which way is up?

Prosperity, safety and growth of welfare of Kazakh people - these are key words to describe the future of Kazakhstan. Kazakhstan has a strong economy and can be described as a politically stable country. Several nations and nationalities have been peacefully coexisting together since the country obtained its independence in 1991. The country also maintains peaceful foreign policy and has good relations with its neighbors. Kazakhstan, being the centre of Eurasia, will not only serve as a link between fast growing regions like China, Russia and Muslim world, but will become a competent participant of large scale geopolitical processes. Kazakhstan people will work in modern age of market economy, keeping at the same time traditions of their ancestors. They will have a good knowledge of Kazakh, Russian and English. They will be supporters of peaceful, prosperous, well-known and respectable country. Kazakhstan aims to become the example of a breakthrough from a third-world country to the leading position of international scale. The Kazakh Economy: where is it heading?

The main purpose is carrying out

a set of activities aimed at creation of a stable economy with safe and comfortable living conditions. Kazakhstan succeeded considerably in profoundness, extent and efficiency of social and economic reforms carried out. Given the strong economic development over the past several years, huge proven deposits of oil and gas, and a well developed financial sector, it is safe to assume that the economic growth of Kazakhstan will continue in the future. At present, the economy of the country is presented by two interlinked groups of sectors:: extractive industries, products of which are essential for the world market; their development is conditioned by transnational corporations operating in the country;; and other industries, operating for internal market, their development is connected with solvent demand of population. The main advantage of Kazakhstan is huge outstanding potential which must be used for the welfare of the country. Since it is well understood that Kazakhstan needs to move away from its dependence on oil and gas exports, the country has chosen a strategy to develop such sectors of the economy, as transportation, electricity, steel and uranium production, agriculture, food processing, tourism and IT-technologies. Having a strong banking sector the country will also continue developing its financial services industry. Significant attention will be given to the development of the securities market, which is why RFCA was established. Having such neighbors as China and Russia, which also experience strong economic growth and have substantial international trade volumes, Kazakhstan has good chances to become a regional financial hub handling huge financial flows. With a strongly growing real sector the country has already become attractive for international investors. KF


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