EXPERT INTERVIEW: Georgian-Russian conflict - Kazakhstan investments are under threat

/IRBIS, Dinara Mukasheva, September 4, 2008/ - Georgian-Russian conflict, which was heated to war scale, forced to fever both commodity and stock markets. The main machination, according to majority of analysts, is in the thing that in the struggle for South Ossetia interests of major geopolitical centers confronted for control over Central Asian energy resources transport way to world markets. In this very context the questions: how lengthy this conflict would be and to what consequences it would lead are acute for Kazakhstan also. In what way further development of Georgian-Russian conflict would influence the rate of Kazakhstan investments` vulnerability in Georgia, what would be the further behavior of Kazakhstan investors in this region - was the theme of expert interview of IFAM IRBIS on the current week. In the course of interview all participated analysts admitted that Georgia is one of key regions for Kazakhstan investors; the zone of interests of both government and private meanings. Kazakhstan investments in this region are rather diversified and assist in energy, bank spheres, telecommunication, oil transportation, and tourism and e. t. c. At that, almost all experts express anxieties that Kazakhstan investments now are under considerable risk. However, taking situation of Georgia into account, domestic business is unlikely to allow itself leave this region. Sapar Baymahanov, financial analyst of Tengri Finance JSC suggests that political risk pressure on Kazakhstan investments in Georgia has already aroused reducing of new investments and decreasing of market value of business-projects. Having close look at this problem, Mr. Baymahanov considers that this conflict redound on decreasing value of Kazakhstan assets, which have its daughter structures in Georgia or using transport opportunities of this country. For example, the fact that Fitch downgraded country credit rating of Georgia will affect funding in upward direction for Georgian economy, including Kazakhstan business-units, working in Georgia. "In our opinion, Kazakhstan investors in Georgian economy both potential and current will take into account increased risks and will operate within earlier concluded contracts. Slight decreasing of investment activity is possible" - analysts supposes. Georgiy Diakonashvily, analyst of REAL ASSET MANAGEMENT JSC stresses that difficult politic situation in South Ossetia hasn't appeared yesterday and correspondently political risk was forecast. However, analyst thinks that nobody expected such thoroughgoing scenario, when Kazakhstan investors had losses. At that, Mr. Diakonashvily is sure that Georgia will become attractive for Kazakhstan business due to its geographic opportunities, moreover big amount of assets have already invested in the economy of the country. "In short-term prospect, vulnerability of Kazakhstan assets will mostly depend not on act of God, but on instability of political and economical situation in Georgia and investors` position will likely to bear wait character till clearing situation in the region and appearing prospects for business" - analyst of REAL ASSET MANAGEMENT JSC considers. Bagdat Kadirov, analyst of Subsidiary organization of Joint Stock Company BTA Bank BTA Securities JSC thinks that notwithstanding that the active phase of Russian-Georgian conflict has already overcome and further escalation of the conflict is unlikely, the threat of disbenefit for Kazakhstan assets retains: the most attackable are financial, transport sectors, tourism and infrastructural objects (ports, trunk lines, terminals e. t. c.) lest attackable are energy, construction sectors, telecommunication and agriculture. Growth of political risks in Georgia has already led to decreasing of its sovereign rating by Fitch agency. Mr. Kadirov also supposes that Kazakhstan investors will retain its positions in this region: "We think that majority of Kazakhstan investors, in particular representatives of energy, transport sectors and logistic, will retain its presence in Georgia, notwithstanding worsening of investment climate. What comes to new investors, the conflict will force them to consider political risks more seriously while examining investment projects, connected with this country and negative moods among foreign investors in mid-term prospect will likely to retain". Shakhnazar Tleuliev, Asia Broker Services JSC considers that the conflict in the current condition won't affect Kazakhstan investments in Georgia, however, in case of strengthening opposition of the West and Russia for this region, more pessimistic variants are possible: "What comes to vulnerability of our investments, we don't think that this conflict in its current condition will restrain Kazakhstan investments in Georgia, if there would be any attractable project. We intentionally stress "conflict in the current condition" as strong escalation of the conflict may force Kazakhstan to take some party, what is unlikely. Such developments are possible if USA and EU decide to isolate Russia both politically and economically". REFERENCE Kazakhstan investments in Georgia March 2005 BTA Bank JSC purchased 49 % shares of Silk Road Bank, which was renamed in BTA Silk Road Bank. Besides, BTA Bank JSC opened its representative office in Georgia and conducts the range of projects on financing hotel and trade complexes construction. May 2006 Black Sea Telecom Holding B.V. Company, which represented the interests of BTA Bank JSC and Georgian Silk Road Group on the auction, purchased 90.65 % shares of Georgian Joint Telecommunication Company, the major operator of fast communication in the country for $90 m. Later, as a result of deal, made on December 15 of the same year, 40.65 % shares of Georgian Joint Telecommunication Company JSC were sold to Dutch Central Asia Logistic B.V. February 2006 KazTransGas - Tbilisi OJV, registered in Georgia Daughter Company KazTransGas JSC became the ownership of Tbilisi Gas- distributing Company Tbilgas JSC, which earlier was recognized as bankrupt. December 2006 KazTransOil JSC (100 % daughter enterprise of NC KazMunaiGaz JSC) acquired 50 % shares of Naftrans Capital Partners, as a result of which jointly with Batum Oil Terminal, Batumi Terminals JV was created. Besides, NC KazMunaiGaz JSC participates in the project of oil pipe Eskene-Kuryk, which will connect plant on oil preproduction, coming from Kashagan field with port Kuryk, where new oil-loading terminal for dead weight tankers intaking is planned to construct. This oil pipe is the part of transport scale of Kazakhstan oil through Baku-Tbilisi-Jaykhan (BTJ) oil pipe to the regions of Mediterranean and Black Seas. January 29, 2008 Halyk Bank of Georgia JSC (daughter organization of Halyk Bank of Kazakhstan JSC) was granted the license for conducting banking activity on Georgian territory. Analysts of Tengri Finance JSC, Subsidiary organization of joint stock company BTA Bank BTA Securities JSC, Asia Broker Services JSC, REAL ASSET MANAGEMENT JSC participated in interview. IAFM IRBIS expresses its gratitude for participation in this project. For detailed information please contact us Tel.: (727) 237 53 41 [2008-09-04]