How going public can protect your business

Why does Kazakhstani business prefer not to go public? There are plenty of reasons but I am going to point out five key «I don’t wants» which prevent Kazakhstani entrepreneurs from entering the stock market.

«I don’t want to be in the spotlight and disclose information»

Transparency is the main condition for any public company, which bears responsibility for its shareholders. It should disclose all the information about its financial state, operational results, structure of ownership and other data. This information is mandatory for every issuer with no exception – no matter what size it is and what industry it came from. Shareholders must have free access to all information about a company’s plans and strategy. Even if a shareholder possesses just one share, he has the right to know what business he invests in.

What does it mean for the business?

Of course, not every entrepreneur is ready to disclose such information because he may want to protect his business. In particular, there are many concerns about so-called hostile takeovers which prevent businesses from going public.

Fortunately, we are here to help businesses and investors. The jurisdiction of Astana International Financial Center (AIFC) based on English law is capable of protecting the rights of issuers and investors because both sides can apply to the International Arbitration Center or AIFC to consider commercial and civil cases. All judges and arbitrators here are experts with international credentials and a flawless reputation for working within English law, which guarantees nonbias and independent views for any case.

When a company is public, it can be protected from any illegal actions.

«I don’t want to change anything»

In order to be prepared for the listing, a business should restructure and consolidate its assets or, in other words, sort out the mess. It is necessary to make that business better structured, profitable and predictable for investors.

This task might be quite a complex and even painful process. However, those businesses which chose this option will eventually realize that this was the best decision of their lifetime. Any business must have an adequate structure. This makes a business more flexible and viable; it starts to better understand what direction it should take to make a bigger profit. Another aspect of this process is establishing a viable system of corporate governance. This effort consumes loads of resources but makes the business much stronger. Once this is done, the company will be able to raise its evaluation and attract new expertise embodied in independent directors of the company.

«I don’t want to share my profit»

Typical Kazakhstani businessmen aren’t yet ready to share the money they earned with blood and sweat because they find this more pleasant to pay themselves in benefits or dividends. Just think about Facebook. Would it have been possible for Mark Zuckerberg to make his company one of the biggest IT giants and to become a billionaire if he had refused to attract funds from investors at the very beginning? I don’t think so. I think it would be an impossible task even for him if there were no close cooperation with investors.

Another important factor is market evaluation, which can be achieved with the help of raising funds. Every owner wants to know how much his company is worth and only the market is capable of showing the true value of a company.

In January 2023, Kazakhstan adopted some changes to its legislation to collect taxes from any profits obtained as dividends. The only exception to this rule are publicly traded companies. In other words, if you want to pay fewer taxes, think about an IPO.

«I don’t want to take risks»

What is the real market value of my company? Will its shares be traded well on the stock market? Many owners’ fear of IPO is driven by uncertainty and the absence of answers to the aforementioned questions. Moreover, some entrepreneurs pointed out the immaturity of the Kazakhstani stock market. There are a handful of retail investors and not many activities on the market, which increases the risk of failure for a newcomer issuer.

Indeed, Kazakhstanis aren’t particularly active when it comes to investing in securities compared to retail investors in countries with the developed stock market. However, we are moving along the same path as other markets, at least in the CIS. Previously, those who had money bought foreign currency. Then they started to invest in real estate. Then in banking deposits. Finally, these people discovered the stock market. For example, retail investors account for more than 80% of trading participants on the Moscow Exchange, which is comparable with other big stock exchanges throughout the world.

We also see the growth in retail investors’ activity on the AIX. The number of transactions over the past six months already exceeded the total figure for 2022. Almost one million accounts have been opened on Astana International Exchange Central Securities Depository (AIX CSD). Of course, it is too early to say that the stock market has become popular among the Kazakhstani people; however, in 2021, there were only 160,000 accounts. I believe, we have a huge potential here and therefore we can predict significant growth of interest in retail investments.

«I don’t want to multiply the number of my competitors by entering the stock market»

Сurrently, the stock market in Kazakhstan is concentrated around the banking center and subsoil users. All other niches are free of competition.

Those companies that dare to enter the stock market now have a chance to skim the cream off or benefit from retail investors’ growing interest in securities. We see that investors are showing a special interest in local businesses, which can be perceived as twins and familiar to investors from Kazakhstan. However, investors may stick to a more selective approach toward businesses they want to invest in as time goes by. In this case, an issuer would be required to put much more effort into marketing to get attention from the market.

In conclusion, I’d like to underline that Kazakhstan has created everything necessary to raise funds on the local financial market. For instance, entering the stock market currently isn’t that expensive with the help of AIX. We have simplified requirements for financial statements, profit level and size of equity offering. Apart from traditional shares and bonds, we have also developed new tools like direct listing and commercial securities, among others. This is why the fact that a company is listed or not listed on the stock exchange must be a vivid signal for state agencies and the public. This fact is going to show whether a company is transparent and legal, if it is socially responsible and what kind of contribution this company can make to the country’s economy. Thanks to this, everyone will be able to make his conclusion about such an enterprise.