This month, Kazakhstan’s national airline Air Astana intends to list at least 25% of its equity on the London Stock Exchange (LSE), and two local exchanges in Kazakhstan, the AIX and KASE. It is seeking a valuation of between $770m and $962m.
For investors, Air Astana presents an interesting proposition. It has successfully navigated the COVID-19 pandemic and the war in Ukraine, posting profits of nearly $150m in 2022. Central Asia has a growing aviation market, of which Air Astana already holds a 40% share. Passenger numbers in Kazakhstan alone are projected to increase from 7.5m to 12.1m by 2027.
The company has also benefitted from some of the strongest corporate governance of Kazakhstan’s state-owned enterprises. Already 49% owned by UK aerospace and defense company BAE Systems, Air Astana has an international team led by industry veterans such as CEO Peter Foster. The company has also enjoyed strong support from the Kazakh government, which has awarded it a privileged market position and backed it with a huge national oil fund.
The company’s flotation would be the second Kazakh listing on international markets this year. Last month, fintech giant Kaspi, which is already LSE-listed, debuted on NASDAQ at a valuation of $17.5bn.
The company has produced extraordinary returns and dominated the Kazakh market through its trifecta service offering of banking, electronic payments, and e-commerce. However, it may face some headwinds at home in Kazakhstan, driven by market saturation, increased competition, and a rapidly tightening regulatory environment.
The Air Astana IPO fits within the government’s broader aims of developing the country’s capital market, improving corporate governance, and reducing the state’s role within the economy. Currently, according to some estimates, sovereign wealth fund Samruk-Kazyna’s assets generate as much as a quarter of Kazakhstan’s GDP.
However, the Kazakh government’s commitment to these reforms has waxed and waned since the IPO program was first announced in 2015. Only one state-owned company, — KazAtomProm (KAP), the national uranium company — has had a successful international listing despite plans to list the national gas, rail, and electricity companies. The long-awaited listing of national oil company KazMunaiGas (KMG) disappointed investors when only a small local listing was forthcoming in 2022.
The governance of Kazakhstan’s state-owned economy has also weakened in recent years. Samruk-Kazyna appears to have abandoned plans to streamline its role to that of an asset management company and continues to act as the executive office of an enormous and inefficient conglomerate.
There has also been a rapid turnover in personnel in the last year, particularly within KMG and KAP. Executive teams have seen multiple rotations and almost all expatriate independent directors have been removed. While there is a debate to be had about the balance of local and expatriate personnel, in a nation with a relatively small professional class and a large state presence in the economy, these international figures built investor confidence in company governance.
The country’s difficult fiscal position has also increased concerns about the government’s role in the economy. In December, the government acquired 7.69% of KMG from Samruk-Kazyna, effectively buying the stake from itself, as a way of securing new revenue for the budget, which has been burdened by anti-crisis spending and major infrastructure commitments.
The result of a government order, the sale had no oversight from Samruk-Kazyna, KMG’s board, or the national parliament.
The acquisition is one of several moves that undermine the government’s plans to decrease its influence in the economy and attract investment. In the last year, the government has in fact increased its presence in the economy by either nationalising or brokering the sale of several assets linked to associates of former president Nursultan Nazarbayev
Last year, it launched enormous arbitral claims against some of its largest investor-led projects, impacting leading international energy companies including Shell, ENI, and ExxonMobil. Kazakhstan is also in violation of the Energy Charter Treaty and risks losing membership in the Extractives Industry Transparency Initiative (EITI), an international transparency organization for the sector. Resolving these issues would be a relatively easy win for Kazakhstan.
Air Astana is a demonstration of what Kazakh state-owned enterprises can achieve with consistent leadership, strong governance, and commitment to international norms and standards — all of which enable strong returns for investors.
There is no doubt that Kazakhstan has the potential to achieve similar results with other state-owned enterprises. This will, however, require a strong political commitment to overcome institutional resistance and drive forward reform.
Benjamin Godwin, Partner at PRISM Political Risk Management
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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