FORECAST - Price growth and low activity are expected in the market of Kazakhstan bonds

/REUTERS, Almaty, Olzhas Auezov, December 29, 02/ - Yield of Kazakhstan government and corporate bonds significantly decreased in the outgoing year, and market remained to be mostly sluggish due to deficit of liquidity instruments, said traders. They don't expect significant changes in 2003. Repayment of sovereign eurobonds of Kazakhstan and growth of republic credit rating to Baa3 investment level by Moody's are considered to be the main events of this year. Two events occurred in autumn and caused a sharp price growth on the most liquid instruments, whose low yield didn't please local investors anyway. "Repayment of (sovereign) eurobonds influenced it all: rating, prices, structure of pension funds assets", - said trader of the local pension assets management company. Pension funds, having more than $1.6bn at their disposal, are the largest investors at the securities market of Kazakhstan. Just before the sovereign eurobonds were repaid by $350m, The National Bank had decreased the required level of government securities in their portfolios along with increasing of limits on investments to corporate debt. Issue volumes of internal bonds of the Ministry of Finance were also not high, and their yield decreased after eurobonds repayment by 100-150 basis points, which led to investors' disappointment. During the last month the ministry hasn't float any bonds issue. "If the Ministry of Finance continue to maintain (in 2003) such policy, there will be no market at all", - said trader of ABN AMRO bank. According to his words, secondary market of the government debt remains undeveloped. "In general everyone buys, nobody sells", - complains trader. Not only private investors but the National Bank also meet similar problems. "Due to the fact that situation in tax and budget is better, issue volumes of securities are relatively small, we (the National Bank) cannot buy (GS) - we are not offered in the secondary market. (Investors) are holding (securities) till maturity", - said Chairman of the National Bank Grigoriy Marchenko to REUTERS. Government of Kazakhstan fixed a budget for 2003 with deficit of 2% of GDP relative to 2.3% this year, consequently traders are not hoping on rise of borrowing volumes of the Ministry of Finance. "Frankly speaking I don't expect any revival (in 2003)", - said trader of ABN AMRO. Traders believe that due to this fact the share of corporate debt will be increasing in investors' portfolios. "Most likely that there will be further growth of volumes of corporate issues, and present issuers will try to use market instruments at the most", - believes analyst of broker company TuranAlem Securities Ruslan Egembayev. "Volume of financial resources is insufficient for companies, - said he. - Economy is put on starvation rations". Only issuers that meet rather strict requirements of "A" listing at Kazakhstan stock exchange (KASE) can float their bonds among pension funds, consequently present market is inaccessible for many companies, including created once again. However, according to Egembayev, many companies are putting listing and bonds issue to the long-term objectives. At present however banks will remain to be leaders, which most actively attract funds in the bonds market. "Banks will borrow most of all, - believes trader of TuranAlem Bank. - I think that there will always be a need in cheap money". As regards the yield, the participants of the market are expecting reduction of straddle between different instruments to the direction of the lowest yield. "Yield of eurobonds of Kazkommertsbank and TuranAlem bank will decrease to the present level (of the eurobonds yield) of the Development bank of Kazakhstan', - believes trader of local PAMC. At present the yield of eurobonds of government Development bank of Kazakhstan totals about 6.5% APR relative to 7.5-8.0% APR on securities of two largest banks - Kazkommertsbank and TuranAlem. "Prices will be growing, because of our assets increase", - added trader. In general, participant of the market disposed themselves on continuation of present tendencies. "Situation will be even more stable and predictable", - thinks trader of Citibank Kazakhstan. [2002-12-29]