Dmitry Pankin, Chairman of the Management Board at EDB: EDB may borrow at KASE or foreign markets before the end of the year

In May Eurasian Development Bank (EDB) issued bonds worth US $48 million at KASE. Demand was three times higher than supply. In the autumn, the institution may consider making an additional issue at Kazakhstan’s stock exchange. Dmitry PANKIN, head of EDB, told Interfax Kazakhstan that he does not exclude approaching foreign lending markets before the end of the year as well.

Mr Pankin, in May EDB issued bonds at the Kazakhstan Stock Exchange (KASE). Who bought them and what was the amount?

We issued bonds for a total of KZT 15 billion. Out of this, insurers bought 48%, Kazakh banks 28%, and management companies 24%. I believe this is a good composition of investors. The main thing is that they are not short-term speculators who just buy and sell, but investors who intend to hold securities for a long time.

What will you spend the funds you have raised for?

We have a significant tenge-denominated loan portfolio. So, there were disbursements: the money was used to lend to telecommunications, in particular KCell, and to reconstruct the gas transport network in Kazakhstan’s regions.

What were the telecommunication projects the money was channelled into?

It was the arrangement of an LTE network to provide villages with broadband internet.

You said earlier that you planned to issue bonds worth US $110-150 million, but the amount was US $48 million. Do you plan to issue more?

It will depend on the market situation. We don’t need more at the moment. Since the demand for our securities was three times higher than supply, we feel that we can make an offering at any time when we need tenge. What alternative do we have? With significant dollar balance, we can swap our currency for short tenge, often at a cheaper rate. For this reason we are thinking now how to work better in the autumn: whether to use swaps, accumulate short tenge, refinance it, or make another issue. We haven’t arrived at a decision yet.

Will you consider your decision to issue additional bonds in the autumn?

Yes, probably in the second half of the year.

Why does EDB need tenge instruments?

Kazakhstan accounts for almost 45% of our portfolio. Infrastructure and the power sector earn from tariffs. There is logic that these companies want a tenge loan. So, we’ll look for further opportunities to lend them tenge. Here, I would like to note that we are also working at the stock exchange as a tenge-rouble market maker. The wider use of national currencies helps to improve the liquidity of the national currency. We are already trading the tenge-rouble pair. In the future, we plan to trade in the Belarusian rouble in Belarus and the Armenian dram in Armenia.

Do you plan to borrow in foreign markets?

This year we don’t plan to borrow dollars or euro in foreign markets. There’s no such need. However, before the end of the year we may issue tenge or rouble-denominated Eurobonds. We’ll do this if the cost of borrowing will be lower compared to local bonds. We’re studying this option at the moment.

A painful question: how’s with Ivolga? Any changes?

No substantial changes. We are in the process of litigation with Ivolga Holding. It’s a complicated process.

It was said earlier that the court had ruled that Vassily Rozinov, the guarantor, should pay a part of money. Did you receive it?

Judgements with respect to the debtor, as well as the guarantor and pledger, have taken effect. Rozinov had extended his personal guarantee. We have recovered some money from him, around KZT 3 million. But, as it happens commonly, an appeal was filed after the first trial. This is a lengthy process.  

In February, a commission was set up at the Ministry of Agriculture to solve the situation with non-performing agricultural holdings, including Ivolga. In particular, the minister said that the commission had a council of lenders to deal with bankruptcy of the holdings? Is there any progress?

Our representatives work on the commission. I wouldn’t say, however, that it has arrived at any specific results. EDB had extended finance for Ivolga Holding and Kazexportastyk that later went non-performing. We expect that the Ministry of Agriculture will take EDB’s interests into account and won’t fix losses by bankrupting the agricultural holdings.

What options does the Ministry propose?

I think there are no specific proposals as to what to do at the moment. It is still being discussed whether it should restructuring against government guarantees or subsidies.

What’s the status of your projects in Kazakhstan? You said you negotiated with Fattoh Shodiyev the construction of a logistics centre in Astana.

We did not manage to structure the transaction for the logistics centre in Astana, there were problems with the collateral. It is a good project but we have not reached an agreement.

Now we plan to finance the construction of a logistics centre in Domodedovo. The main investor will be Kazakhstan Temir Zholy, a national company, and Vasily Anisimov, owner of the Coalco development company. The project costs around US $150 million. It is interesting in that it fits the logic of the Silk Road infrastructure. We talked that there were roads, but there also was the lack of freight handling and container routing technology. It is necessary to create such a logistics centre at the Western Europe – Western China route. It is important to us that KTZ, a Kazakh company, takes part in the project. It is an integration project. We haven’t devised the structure yet such as what KTZ’s share will be and how everything should be built. We are discussing it.

Among other projects, we are considering reconstruction of the Aktau port. We are also discussing reconstruction of the runway at Almaty Airport. This would be a US $13 million loan to equip the runway. We plan to close the transaction this year.

We also have many road projects in Russia and Kazakhstan. These include the Big Almaty Ring Road (BAKAD). It has not been decided yet how to finance it. For the time being, it is suggested that finance will be extended by the government, without involving investors. We’re also in the process of interesting discussions with the Central Asian Energy Company with respect to financing the supply of Russian equipment to Kazakhstan’s power market.

We’ve also decided to finance the Alaigyr project, the respective agreement has been signed already. The loan amount is US $56 million. With Asia Auto, there are no changes yet, because there are no car sale guarantees from AvtoVAZ. We believe this is an important issue and we need guarantees.

With RG Brands, we signed an agreement for approximately US $50 million. They want to buy assets in Russia and this is interesting to us as an integration project.

Is there any news as to other countries joining the bank’s capital?

It is important to understand that this issue is at the initial stage of discussion. As for Mongolia, we met with their representatives at various levels, including the head of the Central Bank and the Minister of Finance. They expressed interest. Serbia also expressed significant interest. I met with their Minister of Finance. Cambodia is interested. Our analysts see it as a dynamically developing country with a host of interesting potential joint projects.

We are not negotiating with them at the moment, but our calculations show that Korea, Japan, India and other major investment countries with significant economic interests in our region could strengthen our shareholding structure considerably.

What are the countries of interest to EDB per se?

We can conduct negotiations, clarify positions and determine promising projects, but the decision is made by the governments. It is their authority. Our task is simply to pave the way.

Thank you for the interview.

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