Uzbekistan has approved a list of eight state-owned companies which have to go ahead with an initial public offering or a second public offering. This list of companies includes an auto group, a postal operator and a pharmaceutical sales network. When and what size of equity these offerings must be will be determined by the state commission on bidding. The Kursiv edition has asked the stock market players what they think about these future offerings.
At a parking lot
Four out of eight companies are going to go public: UzAuto Motors (automobile producer), UzAuto Motors Powertrain (engine producer), Uzbekgeophysics (geological exploration) and Uztemiryolcontainer (rail car operator). The government of Uzbekistan owns a lion’s share of these companies: 100% of shares in the first two entities and 97% and 90% in the last two companies, respectively.
Head of the National Association of Investment Institutes Bahodir Atakhanov believes that the size of offerings on IPO must cover all the investment programs that companies are implementing. Otherwise, they will be forced to rely on borrowed funds that would increase expenses. The government should sell at least 10% of the companies’ equity to provide liquidity for the shares.
UzAuto Motors has been planning IPO since 2020. Back then the company started to search for an underwriter to arrange the offering of 10% of its nominal capital in shares. In 2021, the company was ranked by Fitch and S&P and sold Eurobond for $300 million. However, the company hasn’t gone for IPO.
On February 14, President Shavkat Mirziyoyev announced new plans for the development of the automobile industry. Over a five-year period, the country is going to increase car production 1.4-fold while increasing car export twofold. Of course, this endeavor will require much more investment in the industry. The government of Uzbekistan wants the car industry to start producing two new car models and new types of engines and is ready to allocate $336 million for investments.
Uzbekgeophysics which is involved in oil and gas exploration in Uzbekistan is going to upgrade its research equipment which is 56.7% worn-out.
Uzbekistan is also aimed at selling a parcel of shares it owns in Dori-Darmon, a pharmaceutical sales chain (the government owns 36.1% of the company). Both IPO and SPO would be working for the company as it is widely common in Uzbekistan to go to an SPO without an IPO. For instance, the government did this when it sold the state-owned shares of the Kokand Mechanical Plant. According to Uzbekistan’s legislation, the second public offering is nothing more than the selling of shares to an unlimited group of investors on the stock market. At the same time, IPO is seen as a tool for an additional offering. By doing so, a company can beef up its capital stock.
For example, companies such as Uzbekiston Pochtasi (the government owns 77.6% of the company) and two insurance companies Universal Sug’urta (14.5%) and Alskom (5.21%) are going to go on SPO and they never planned to go ahead with an IPO.
“For those companies where the government’s share is not big, it would be better to bid for SPO,” Bahodir Atakhanov said.
However, once this huge amount of shares sold by the government enters the stock market it would cause a plunge in their value. It is very important to keep an eye on the market condition, Atakhanov said.
Several companies on the list are already listed at the Republican Stock Exchange Tashkent. These are Uzbekgeophysica, Uztemiryoulcontainer, Dori-Darmon and Alskom. Shares of Uzbekiston Pochtasi and Universal Sug’urta are traded on the off-market platform Elsis-Savdo.
The shares of Dori-Darmon are the most popular – there were 149 deals with these equities. The lowest result was shown by Uztemiryolcontainer – only two transactions.
The main goal of Uzbekistan’s government is to stimulate the national stock market. According to the president’s edict that has approved the list of eight companies whose shares are to be sold, “the selling of shares would expand the practice of privatization through the equity market.” This market is still nascent in Uzbekistan and the privatization of state property would help it to grow faster, said Robert Jensen from Mosaic Financial LTD.
Another task for IPO is to launch a process of deep transformation of the management of companies where the government still owns a share.
“Privatization would make state enterprises more transparent and let them attract additional funds through listing on the foreign exchanges,” said Munir Yakubov, head of Portfolio Investments.
Starting from April 1, 2022, Uzbek issuers will be able to make offerings on foreign markets if they already have a listing on the Tashkent exchange. This is one of the promises the current president made during the past presidential elections.
However, it is not so easy to attract funds on the local market. As Oybek Kadyrov, head of Premium Finance noted, it seems that shares of Uztemiryolcontainer, UzAuto Motors and UzAuto Motors Powertrain will be more popular among investors than shares of other issuers.