KASE: Why take a loan if you can issue bonds?

Kazakhstan’s small and medium-sized businesses experiencing difficulties with capitalization can attract long-term money by entering the stock market. KairatTurmagambetov, Kazakhstan Stock Exchange JSC (KASE)Managing Director of Business Development, believes so.

“Traditionally, when companies need money, they turn to banks. But, as a rule, when you go to banks, they require a collateral. If you have a project for 100 million dollars, euros or tenge, then you must provide collateral with the market value much higher than the requested amount,”says Kairat Turmagambetov, speaking at the “Financing of SMEs and big business projects in the oil and gas industry” forum held in Atyrau on April 9. The event is organized by the Oil and Gas Industry Strategic Partnerships Development Council (Petrocouncil) with the support of NCE Atameken and KAZENERGY Association.

The expert mentions as examples such globally recognised companies as Alibaba and Apple, which actually never took on a loan, but attracted investors’ funds by placing their equities and bonds. And that did not prevent them from becoming successful public companies.

“In 2018 the turnover of Kazakhstan Stock Exchange amounted to 128 trillion tenge. If you look at the capitalization of the stock market, it reached 15.5 trillion tenge”, says the representative of KASE.

According to him, 52 members of the exchange and more than 116 thousand individuals participate in the trading of the stock market now.

“This is less than 0.5% of the population of the country. This is probably the result of the lack of financial literacy. For example, in Japan 39% of the adult population invests in securities,” says the expert.

He explains that Kazakhstani companies need to meet certain requirements in order to be funded on the exchange. In particular, we must be prepared for the fact that we will have to maintain transparent financial statements.

KASE has created an alternative platform for small and medium-sized businesses, where many companies attract medium and small capitalization by issuing shares or bonds.

“The conditions are very mild. I think almost everyone has such opportunity. The most important condition is that companies are willing to open information about themselves,” says Kairat Turmagambetov.

He believes that there are many investors in Kazakhstan who are ready to invest their finances in local companies’ securities. The expert usesas an example the Bast Company, which has come to the market to attract only 2 million tenge.

“They placed one share for an average of 21 thousand tenge. Today their cost is more than 55 thousand tenge. Moreover, almost 90% of investments were made by individuals”, says KASE Managing Director of Business Development.

Speaking about the opportunities to attract investments from the population, the expert notes that today only individuals hold more than 8 trillion tenge ($25 billion) on their deposits in second-tier banks. The expert believes that at least 10% of these funds can be raised on the stock market.

He explains how issuing shares or bonds is different from taking a loan.

“In the case of a bank loan, you serve itfor the entire repayment period paying monthly interest plus some part of the principal, by issuing a bond you pay at the end of the term. If you have issued bonds for five years, then you pay the principal at the end of those five years. The determination of frequency of payment of interest rates is up to you. As a rule, it is once or twice a year,” he says.

Therefore, KairatTurmagambetov invites representatives of Kazakhstan’s small and medium-sized businesses with a clear strategy and good management to come to the exchange and place their securities.