How to solve the financial problem of the oilfield services sector?

«Challenges and prospects of financing of petroleum service sector of Kazakhstan» round table finished its work in Almaty. In the course of this event experts from the government, National bank, institutes of development, banks, international investment companies, oil and gas operators and oil field service companies discussed the ways for solving of problems of industry financing.

According to words of Rashid Zhaksylykov – the chairman of the executive panel of “Kazservice” Union of oil field service companies of Kazakhstan – the vast majority of orders from such operators as North Caspian Operating Company N.V., Tengizchevroil and Karachaganak Petroleum Operating B.V. is most of the time given to foreign companies.

“In addition thereto among 30 top companies by circulating assets only 5-7 are local ones. The remaining share take companies with foreign share capital. It does not say that local companies are not able to compete or do not comply with requirements and standards. There is a row of challenges available, which require solution, among them there are certainly issues of financial provision including high demands and guarantees of second-tier banks when crediting local business, lack of banks’ liquidity and long consideration of requests. Also it should be noted that today large operators do not recognize second-tier banks as guarantors. One more problem is that regulator established restrictions, according to which second-tier banks are not able to finance Kazakhstan business agains solid contracts”, – advised Zhaksylykov.

In the opinion of CSI senior partner – Olzhas Hudaibergenov – particularly Kazakhstan content in oil and gas projects will be the basic driver of country economy growth. Whereas the problem of Kazakhstan local content requires change of the concept of regulation and monitoring, which in case of correct approach will give quick effect.

But a representative of the Republic of Kazakhstan National bank, chief of administration of the Department for methodology and regulation of financial organizations – Daniyar Nurmanov – objected that regulator does not restrict second-tier banks in financing of projects against pledge of bank guarantees.

According to him the country has restrictions of recognition of not solid

kinds of pledge – this is just money inflowing in the future or insurance agreements. Some kind of Off-take contracts, when requirements are sent not towards supplier (oilfield service company), but rather to customer (operator); in this case a customer shall be a legal entity, whose 50% of shares shall belong either to the state or national holding, or local executive authority, with rating not lower than BB+, or it shall be a legal entity, whose 70% of income are formed with the indicated organizations. The second requirement is that customer shall specify in the contract that it will perform its provisions under the contract.

Representatives of stock market, second-tier banks, investment companies proposed valid instruments of crediting, receiving of financial guarantees to oilfield service sector.

Thus, business development director of Astana International financial center) – Nurlan Yesmagambetov – proposed to the companies to attract investments by means of financial hub, where large international companies have been registered, including banks.

Insurance department director of KazakhExport company – Kuanysh Mukazhanov – offered to the business comprehensive support to Kazakhstan companies abroad.

He stated that KazakhExport helps companies with insurance of bank payment guarantee, insurance of loans, pre-export financing, export trade financing, insurance of customer’s direct financing.

Whereas own capital of KazakhExport Export insurance company JSC is equal to more than 79 billions of KZT.

KASE business development managing director – Kairat Turmagambetov – proposed to the oilfield service to raise money at Kazakhstan stock market.

According to the financial expert IPO (the first public sale of shares of joint stock company) and SPO (public placement of shares, which belong to already existing shareholders) is rather efficient strategy of fund raising.

Thus in the course of IPO KazTransOil JSC raised 27,9 billions of KZT, whereas 79% of shares were bought by physical individuals.

KASE official list shows 31 companies from oil and gas industry, their general capitalization (as of the 15th of July 2019) was equal to 8 trillions 794 billions of KZT.

According to outcome of the round table the participants pointed to the need for arrangement of additional meetings with large operators and oilfield service companies. Besides the Union of oilfield service companies jointly with concerned parties intends to work out a row of proposals concerning issues of financing of Kazakhstan companies in oil and gas sector.