The offering of the year: FRHC raises $200 million on AIX to finance its telecom project

Freedom Finance SPC Ltd, a subsidiary of Freedom Holding Corp., has placed five-year bonds with a yield of 11.5% to 12% per annum and raised $200 million. This was the first stage of a $1 billion issuance program, the holding said in a statement.

According to Timur Turlov, CEO and majority shareholder in Freedom Holding Corp., the bond offering has been the biggest public deal involving retail investors for the past several years on the AIX. He also emphasized that the offering was unique for the local market because of its size and 100% involvement of individuals.

«We have managed to offer investors the best terms the Kazakhstani market has ever seen. Currently, this is the most profitable security nominated in USD and with the monthly coupon,» he said and highlighted that investors’ interest in the bonds proves their trust in the Freedom Telecom project.

As Turlov noted, Freedom Telecom is Kazakhstan’s new high-tech communication operator. Funds raised through the recent offering of bonds will be allocated for the launching and development of the company.

In July 2023, the CEO of Freedom Holding Corp. announced the launching of a new telecommunication operator focused on the 5G standard. At the time he said that he was very interested in the communication market and it was very likely that «telecom would be a new core of our ecosystem and would dramatically change the very idea of efficacy and speed of the decision-making process, minimization of errors, accessibility of products and quality of life.» He also said he would create a brand-new 5G operator within five years.

«We have decided to risk it and find a solution for one of the most important problems in our country, not just complain about it. We want the internet as a modern staple product to be accessible for anyone in our country,» Turlov said.

Earlier this year, Turlov revealed the holding’s plans in his op-ed on the Kursiv website. For instance, the first 5G pilot projects are expected to be launched by the middle of next year along with a backbone network and data processing center. The holding is also expecting that the new mobile operator will be the fourth biggest operator in the country with 25% to 30% of the market share in Kazakhstan by 2028. To reach this goal, the holding is going to continue to put investments in the company.

As a result, Kazakhstan will be ranked among global leaders in mobile and fixed internet quality. «Thanks to many factors, including products by Freedom, we are already ahead of many developed countries in terms of digital banking. Kazakhstan is ranked very high for its digital public services. I think we can do the same in the telecommunication area,» he said.

Details of the offering

Within the first two years of the offering, the coupon rate will be at 12%. At the end of the second year of the offering, the issuer will set a new coupon rate for the following three years of the offering based on the effective interest rate for federal funds published by the U.S. Federal Reserve System and a fixed margin of 6.5%. Coupon payments for the bonds will be made each month during the entire period of the offering.

The issuance was public and the bonds were offered to a wide range of investors without any restrictions. The nominal cost of one bond is $100 under the condition of purchasing at least ten bonds. During the offering, investors filed more than 3,200 applications which were satisfied either fully or partially. As a result, the bond issuance was placed almost completely.

The bonds were issued under the rules and legislation of the AIFC through the holding’s subsidiary Freedom Finance SPC Ltd. Freedom Holding Corp. guarantees that all liabilities related to coupon payments and debt redemption will be fulfilled. Given that the issuance was focused on retail investors from the very beginning, the offering sparked big interest among individuals (all of them clients of Freedom Broker). They accounted for 97.7% of those who have bought the bonds. At the same time, those clients of Freedom Broker who opened their accounts after the announcement of the issuance accounted for 13% of applications for the bonds.