Kazakh Wealth Fund Eyes Tenge Debt, EBRD Loans as Economy Slumps

  • Managing director says slowdown is `biggest challenge'
  • Samruk-Kazyna seeks to cut debt burden via privatizations

Kazakhstan’s sovereign wealth fund is weighing asset sales, loans from the European Bank for Reconstruction and Development and a move into local-currency borrowing as it seeks to reduce its $17.3 billion debt load.

“We expect to gradually optimize our debt, but it’s complicated in the coming 12 months with the weak economy,” Yelena Bakhmutova, the managing director of Samruk-Kazyna, said by phone from the Kazakh capital, Astana. “The biggest challenge for us is the drop in business activity, the pace of gross domestic product growth.”

Samruk-Kazyna, which manages the government’s stakes in some of the nation’s biggest companies, has scrambled to cut its debt burden using bond buybacks at its units after the Kazakh tenge lost half its value amid slumping oil prices and devaluations in neighboring Russia and China. With oil trading 33 percent below last year’s peak, the economy of the second-largest energy producer in the former Soviet Union will post zero growth in 2016, Moody’s Investors Service said last week.

While the currency has recovered 15 percent from its record low in January, Bakhmutova said it will take until the fall before capital markets are fully functioning, at which point Samruk-Kazyna will consider borrowing in tenge to reduce its exposure to foreign loans. The fund will rely on state privatizations to lower its debts and “hopes” to borrow from the EBRD in tenge as well as foreign currency, she said.

Moody’s cut Kazakhstan’s credit score to Baa3 last week, its lowest investment grade, citing the drop in oil and currency depreciation. The proportion of the government’s debt held in foreign currency doubled to 43 percent last year as the tenge nosedived following the government’s switch to a free-floating exchange rate in August, it said.

The oil company KazMunaiGaz National Co. and rail monopoly Kazakhstan Temir Zholy account for the bulk of Samruk-Kazyna’s debt with a share of 59 percent and 18 percent, respectively, according to a company presentation.

“The issue is not to cut debt, but to improve its structure” by borrowing in tenge, Bakhmutova said. “It will take about a year from the shock of the free-float and subsequent depreciation for capital markets to stabilize in Kazakhstan.”

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