Central Asia

AIX chief executive: "liquidity breeds liquidity breeds liquidity"

Timothy Bennett, CEO of the Astana International Exchange, talks to FinanceAsia about how his lessons learnt running the NZX will help get Kazakhstan's second stock exchange's engine running.

Much like Kazakhstan’s capital, Astana International Exchange (AIX) is work in progress. Nur-Sultan is a futuristic planned city of skyscrapers that only became the country’s capital in 1998. The financial hub of the new city is the Astana International Financial Centre (AIFC), itself formally launched 20 years later, in 2018.

At the heart of the AIFC is the AIX, whose mission it is to develop the public equity and debt capital markets in Kazakhstan and Central Asia.

Chief executive of the AIX since June 2018, it is easy to see why Timothy Bennett was appointed. The native New Zealander and the former head of the NZX has already led one stock exchange through a period of dramatic change.

He spent much of last year addressing issues of regulation and compliance such new laws on listing, multi-currency settlement, securities lending and borrowing, covered short-selling and a new custody model.

With that under his belt, the challenge that faces him now should not be underestimated. Volumes at the AIX are growing, though they remain anemic. The total traded value on the AIX in December was a mere $2.5 million.

Key to the success of the stock exchange this year will be the government’s privatisation programme. Since the $400.8 million dual-listing of a 15% stake in national uranium producer Kazatomprom in London and on the AIX in November 2018, very little has emerged.

But after several false starts, it looks as though the Samruk-Kazyna sovereign wealth fund will push ahead with stake sales in national oil company KazMunayGaz (KMG), national telco Kazakhtelecom and the national airline Air Astana before the end of this year.

Here, Timothy Bennett talks about his plans for the AIX, the role he expects to play in Belt and Road initiatives and how the exchange is embracing both Green and Islamic financing.

The following transcript of FinanceAsia’s interview with Timothy Bennett has been edited for brevity and clarity.

Q Are the privatisations of KMG, Kazakhtelecom and Astana Airlines going to happen this year? 

A Samruk-Kazyna has been quite specific about its target for this year. But as there would be in any privatisation, there is not an intention here to sell anything at any price. We have got to be cognizant that global equity markets are in an odd place at the moment. We have seen a reasonably sharp decline in IPO activity over the last couple of years. I would expect, like any rational investor, that Samruk and the Kazakh government will take market conditions into account when they make decisions. Both Samruk and the government have been very clear that they’re committed to the privatisation programme.

Q It was disappointing the privately owned fintech group Kaspi pulled its IPO last year. What are you doing to encourage the private sector to list? 

A We are in the process of developing a simplified regulatory framework for smaller, mid-sized Kazakh businesses. Larger businesses can access global markets such as London, but it’s obvious that smaller businesses cannot. We want to be able to start to build both retail and small institutional demand for those. We expect to put that in place by the middle of the year.

We also want to get some public capital nominated debt listed by private sector issuers. There is clearly both supply and demand there. And good quality names too. Historically we haven’t had much of a public debt market for private sector securities.

There was nothing here 18 months ago. We have 20 or 30 different initiatives, pieces of a jigsaw puzzle that we’re gradually pulling together over the next couple of years. Clearly, private sector debt and equity issuance is part of that. It is not going to happen overnight, but we are making good progress there. 

Q What role do you expect to play in the Belt & Road initiatives?

A We have had better-than-expected initial interest from Kazakh businesses which have Chinese investors or Chinese investors that operate in Kazakhstan. I suspect that we are going to be more successful this year in terms of debt issuance. We’ve got a couple of ideas in the pipeline, and that’ll be the start of it. There’s strong investor interest in Kazakhstan. The challenge for us is whether these are projects or businesses that are willing to go through a public issuance process. And that’s within a market environment where historically these have been few and far between. It takes time to educate and lead people through that process. The Belt and Road is clearly on our radar screen.

Q: Given the Shanghai Stock Exchange owns a 25% stake in the AIX, what kind of help is it bringing to the table?

A The Shanghai Stock Exchange seconds a deputy CEO. We had someone for the best part of three years who has just returned to Shanghai and we are getting a new secondee in March. They’re part of the management team and lead that Belt and Road effort. But more importantly, for us, they guide us on how to engage effectively with Chinese investors and brokers and banks. Through that relationship, we have a number of Chinese brokers. We had more than a handful of investor roadshows in China last year. The Shanghai Stock Exchange supports us on all of those initiatives. They have been very helpful in an advisory and guidance sense.

Q The religious makeup of the country suggests that Kazakhstan should become a significant centre of Islamic financing. How do you develop that market?

A Within the AIFC there is a dedicated effort on Islamic finance for both public and private issuance and similarly with green finance. There are groups of investors who are looking for either green or Islamic finance, and the challenge that both teams have is to find opportunities within Kazakhstan that meet those requirements.

Given the Muslim population here, you might expect there to be Sharia projects but there’s never been the demand for this and so they haven’t focused on meeting those requirements.

We are about to announce the first private bond issuance under green finance rules. The EBRD is financing an initiative to replace and expand street lighting [in East Kazakhstan]. Green financing is clearly of interest here and I would expect the same thing over time with Sharia financing.

Q You targeted regulation last year as a priority. What else is there still to do?

A At least in terms of infrastructure, we are there. But the major focus now is on usage. It’s very interesting that in a market which has never had margin trading, for example, or securities borrowing and lending, you can put the product out there, but there is a big education process to get the volumes up. We’ve shifted from “build” to “grow the business” now, particularly around market operations post trade. We just need to get the volumes up.

Q What have you imported from New Zealand that was specifically useful to the Kazakhstan model?

A There are surprising similarities in the environment that we operate in between Kazakhstan and New Zealand. There are three that we draw on. One is the privatisation programme. The New Zealand government privatised when I was at NZX and there are clearly some learnings from how to do that, which are translatable. The second thing is the regulatory environment because our environment is very similar to the environment that was put in place after the financial crisis in New Zealand. And then thirdly, a pension scheme which is engaging retail investors in thinking about equity investing.

More practically there are three things too. Our technology environment, somewhat by luck is the same as New Zealand’s and our post-trade system was developed in New Zealand. There is a degree of familiarity with the operating environment and technology infrastructure, although I would say that we’re much more cloud-based than most exchanges.

Second, the regulatory environment, the way we structure our team, our self-regulated model is very similar to New Zealand.

And finally, at NZX we extended the range of exchange traded funds to 23. That business has grown somewhere between 16% and 19% annually since we launched those funds. It is clearly quite a different market environment, but you can see the appeal of these types of products globally, and we want to engender some of that excitement through exchange traded products here.

We’re very fortunate to be able to do things here, starting from scratch, because we can really think about how we’re going to deliver a very efficient trading and settlement platform for international investors.

Q What are your priorities for the rest of the year?

A We are in good shape. Out priority is to get volumes up. When I first got involved in the exchange business a gentleman said to me “liquidity breeds liquidity breeds liquidity”. That is our mantra this year.

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