ANALYSIS: Halyk Bank of Kazakhstan OJSC shareholders may use high selling price of SBS to receive profit

/IRBIS for PANORAMA, Nov 22, 01/ - Continuing to inform of the most interesting events on the country's financial market, the agency IRBIS decided to talk about the sales of state block of shares (SBS) of Halyk Bank of Kazakhstan OJSC. The matter is that because of high selling price of state block of the bank minority shareholders (that is the owners of relatively small amount of shares) can make profit. On November 20 of this year the SBS was bought by a consortium at the trades at a price, as the management of KAZKOMMERTSBANK OJSC stated in its congratulations to the consortium members, that "worth the respect". The block consisting of 18,075,334 common inscribed shares (33.33% of the bank's authorized capital) was bought for $41m. Therefore, the price of a share is about $2.27 or at current rate of the Exchange - KZT337. The consortium was made of Mangistaumunaigas OJSC, Merkurii LLP, Raimbek Bottlers LLP, Rakhimjan LLP and Trade-Financial company Altyn-Taraz LLP. The purchasing price is really deserves the respect, especially when the size of the block is taken into consideration, and is an object of satisfaction for the Ministry of Finance. But on professional stock market of Kazakhstan the shares of the bank sometimes were sold at much higher prices (please, the table). Naturally, the matter, first of all, is the deals which were relatively small, and second, resale of the shares on secondary over-the-counter market, but not the purchase of the state block. If the term "much higher" is used, then actually, there are two cases and they hardly deserve any attention: on August 7, 1998 a total of 100 shares were bought at $10.29 (KZT800) per share and a week later only two shares were sold at KZT1,200, or $15.33. In other cases the prices of the deals were comparable to those of November 20 auction, and mostly were much lower. But what prices are these? The information shown in the table - the data on all the deals made at the Exchange (there were 57 of them), where minority shareholders, individuals can actually take part through brokers, though actually such cases are quite rare. The second part of the information - deals made on over-the-counter market (1,401) where professionals participants were buying the shares from the individuals. These individuals were selling the shares at a price equal to or exceeding the price that was paid for the shares. And these prices were paid during different stages of Halyk Bank privatization history ranging from KZT100 to KZT120, which is much lower than $2.2 even calculated at the exchange rate that existed in 1998. For example, at the offering which was held in late November 2000 among the shareholders with preemptive rights to buy 5% stake in additional issue the price of the shares was set at KZT120 ($0.83). The price of KZT100 (face value) and a little more existed during the all previous privatization history of Halyk Bank. But let's get back to nowadays. Based on the article 29 of the Law of Kazakhstan "On joint stock companies", the individual, who bought 30 or more percent of the joint stock company's voting shares by himself or along with affiliated individuals, should publish the offer in printed media within 30 day period asking other shareholders to sell their shares at a price not less than weighted average purchasing price paid by this individual during the last 6 months preceding the purchasing date of the company's block of shares. It actually means that quite soon all interested persons who bought the shares of Halyk Bank for about $1 can sell their shares at least twice as much. It happens quite rarely on the market. The word "can" is not accidental. When the matters is about a consortium, it leads to the assumption that it is consisted of affiliated individuals. Because, based on the Civil Law of Kazakhstan (article 233) consortium - is a temporary voluntarily union based on the agreement on joint economic activities where the legal entities unite their resources and coordinate their efforts to solve certain economical tasks. And bear a joint responsibility on the liabilities associated with the activities of the consortium. It is rare that legal entities without common interests join as a consortium, because they have no common economical tasks. But a good logic and assumptions are not enough in this case, since the term "affiliated individual" is a legal term and was described in a number of normative acts. Particularly, regarding the stock market it was clearly described in the resolution #181 of the National Securities Commission of Kazakhstan Directorate, dated Oct 26, 98 "On the use of the term "affiliated individual". The document is quite complicated and takes into account family relations among the individuals who can influence the shareholders. The term affiliated individual was also described in banking legislature. In other words, authorized body - the National Bank of Kazakhstan - will apparently have to clarify, whether the companies participating in the consortium mentioned above were affiliated individuals before the purchasing the last state block in Halyk Bank. If the question is solved positively, then minority shareholders can get a profit, and the members of the consortium can increase their shares in Halyk Bank, which is quite interesting as well. The situation is serious and not accidental and it can be explained by the following example. From November 21 the Board of the Kazakhstan Stock Exchange (KASE), where the shares of Halyk Bank are quoted under the highest category of listing, temporarily lowered the spread requirements to the market-maker of these securities. From November 21, 01 through Feb 20, 02 the difference between bid and ask prices of the shares at the Exchange can reach 300% of the bid price instead of regular 100% specified by the regulations. The decision was made "due to uncertain situation that has settled on the market caused by the sale of state block of Halyk Bank of Kazakhstan OJSC on November 20" and can lead to unjustified risks for the market-maker. Such exceptions are taken into account by the regulations of the Exchange, and the market-maker made the use of them. In conclusion, it should be said that based on the extract from the shareholders of Halyk Bank of Kazakhstan OJSC, as of January 1, 2001 total number of the bank's shares was 37,823. The minority shareholders (with less than 5% stake) had 13.88% of voting shares. Prices of Halyk Bank of Kazakhstan OJSC shares and volume of deals on the market in each quarter ------------------------------------------------ Price per share, USD Quart- --------------- Number Volume Year er min. max. WA of deals th. USD ------- ------ ---- ----- ---- -------- -------- 1998 II 3.08 3.08 3.08 1 110.1 III 1.88 15.33 2.73 1 315 938.3 IV 1.19 1.92 1.76 12 452.6 ------- ------ ---- ----- ---- -------- -------- 1999 I 1.17 1.85 1.72 40 120.0 II 0.83 2.39 2.04 35 49.1 III 0.75 2.40 0.98 30 33.8 IV 0.80 2.54 1.86 8 297.4 ------- ------ ---- ----- ---- -------- -------- 2000 I 2.00 2.32 2.03 4 499.2 II 0.91 2.00 1.98 2 29.9 III 0.77 0.91 0.91 2 8.2 IV 0.72 0.87 0.85 8 10,578.2 ------- ------ ---- ----- ---- -------- -------- 2001 I - - - 0 0 II - - - 0 0 III 1.22 1.22 1.22 1 0.015 IV - - - 0 0 ------- ------ ---- ----- ---- -------- -------- Amount 1,458 13,117.0 Average 0.72 15.33 1.12 ------------------------------------------------