LRT Project Owners Failed to Find Underwriter to Issue Bonds on One Billion Dollars
City Transportation Systems company tries to find an underwriter to raise $1.08 billion through bonds issuing. However, on May 26, 2021, the tender committee declared that the tender is canceled. The reason is that one of the two participants, SkyBridge Invest, left the race because it failed to meet all the requirements. Since there was only one participant, the tender committee couldn’t proceed further with the tender procedures. A suitable time for the second attempt at the tender has not yet been announced.
Prevented from Bidding
City Transportation Systems LLP (former Astana LRT LLP) is owned by the city of Nur-Sultan and is responsible for the development of public transportation, including light railways transport (LRT) construction or in this specific case for the finishing of that project. To do so, City Transportation Systems (CTS) has to find about $1.08 billion. That’s why the company has decided to issue bonds and place them at a foreign exchange and the AIX. The Ministry of Finance of the Republic of Kazakhstan is supposed to act as an official assurer of the project.
CTS is looking for underwriters through open tenders and is ready to pay about $1.5 million as a reward. The first round of bids was announced on April 12, 2021. As of May 26 when the contest should have started, only two companies – Halyk Global Markets and SkyBridge Invest – applied for the tender. However, the contest committee has found out that SkyBridge Invest doesn’t meet all the requirements. The potential supplier has failed to prove it has headquarters, a subsidiary, or a representative office in Kazakhstan. The e-copy of a rent contract it provided couldn’t be accepted, according to the rules.
Since the only participant was Halyk Global Markets, the tender has been canceled.
Currently, there is no bidding information by CTS on the state acquisition systems website. However, it is unlikely the tender conditions would be changed.
The unsecured 10-year bonds by CTS must be issued by the end of this year. The fixed coupon payment will be paid once or even twice a year.
Any potential underwriter has to analyze the costs of bonds issuing for 5, 7 or 10 years in such currencies as euros, U.S. dollars and Kazakhstani tenge before it chooses specific parameters of the deal.
Moreover, in July 2020 CTS had already tried to raise money and also declared a similar tender. It failed because nobody applied to the tender.
CTS issued bonds once in September 2019 when it raised $520 million at the AIX. About $400 million was provided by Halyk Bank, and $10 million by KazakhExport, Development Bank of Kazakhstan and Altyn Bank each.
All that money was set to redeem the debt to the Development Bank of China, which provided Kazakhstan with a $1.5 billion loan for the LRT project. Part of that loan has been frozen at Bank Astana, which no longer exists, and the second trench has never happened.
Heavy Fate of the LRT Project
The LRT project in Nur-Sultan has started in 2011. The final date was changed several times. For example, a project owner promised to start exploiting the line by the opening of ЕХРО-2017, which also never happened.
At the very beginning, the total cost of the project didn’t exceed $1.8 billion and should have include 18 stations, 19 locomotives and a depot near Nursultan Nazarbayev International Airport. However, by the summer of 2019, the number of stations was reduced to 11, which allowed CTS to reduce the project cost to $1.5 billion and save $350 million.
The consortium of three Chinese construction companies engaged in the project stopped its work in April 2019. Right after that, law enforcement officials initiated an investigation accusing several individuals of fraud and the theft of $13.5 million allocated for the LRT. In October 2020 the investigation was closed.
On May 28, 2021, the Specialized Court of Nur-Sultan passed a sentence on seven individuals involved in the LRT construction. All of them are officials of Nur-Sultan city administration and Astana LRT employees. They were sentenced to seven and 10 years in jail. Two other suspects, Kanat Sultanbekov, former deputy mayor and Talgat Ardan, former head of the Astana LRT are still under international search.
Currently, Nur-Sultan has a population of 1.1 million people, who in terms of public transportation can rely only on buses, while during Soviet times 300,000 residents of the city could have ridden on buses and trolleybuses.
