JP Morgan launches in Kazakhstan

Financial News

Jason Corcoran in Moscow
12 March 2009

JP Morgan opened a representative office in Kazakhstan last week just as the government began to appoint financial advisers to restructure its troubled banking sector.

Bill Winters, co-chief executive of investment banking at JP Morgan, travelled to Kazakshstan for the opening last week and had talks with Kazakhstan’s prime minister Karim Masimov and government officials.

The representative office is staffed by “a handful of people”, according to a spokeswoman for JP Morgan, and is headed by Timur Kunanbayev, who had been the London-based head of investment banking coverage for Kazakhstan since 2007. Prior to JP Morgan, he had been managing director of Kazakh bank Alliance.

Kazakhstan’s banking sector has been badly hit by the collapse of the property sector in Almaty and Astana, failing oil prices and the closure of the international credit markets.

The Kazakh government took control over Alliance and BTA Bank, two of the countries largest lenders in February, after they breached liquidity and capital adequacy ratios. The government has said the takeovers are only a temporary measure directed at stabilizing the banking system.

BTA, the largest lender, said on Tuesday it was not in talks to restructure its debt despite market speculation and the appointment of Goldman Sachs as an adviser.

Russian bank Renaissance Capital won a mandate in November to co-manage the Kazakhstan government's distressed asset fund. Other Western banks are believed to be talking to the government about potential mandates.

The spokeswoman for JP Morgan said Winters had met with government officials but declined to comment on any role the bank might play in advising restructuring of the banking sector.

She said: “In terms of clients, we will focus largely on servicing quasi-sovereign institutions, selected banks and high-quality corporates.”

The rep office located in Kazakhstan’s financial capital of Almaty will support the bank’s industry and product teams in London and worldwide. Domestic clients will be offered access to investment banking products, including debt and equity capital markets, mergers and acquisitions, and global markets solutions. The office will also promote JP Morgan’s range of treasury and securities services.

Credit Suisse, Renaissance Capital and Troika Dialog all have operations in Almaty.

Oil boom sweeps across the Kazakh plains

Business New Europe

Jason Corcoran in Aktau

The windswept dustbowl of Zhanaozen in the Mangistau oblast in western Kazakhstan can be a sweltering and inhospitable place in summer. Stretching out as far as a squinted eye can see is an army of nodding donkey oil pumps scattered across the plains.

Employees of state-controlled KazMunaiGaz seem to have little to distract them but work at these production facilities, where temperatures range from 40 degrees in summer to minus 30 degrees in winter. Company officials say workers are compensated for toiling in such desolate conditions and are even allowed to take subsidised breaks at the president's summer resort at Kenderlie on the Caspian coast.

Such is the nature of the oil boom that is sweeping over the steppes of Kazakhstan, creating a vast new industry and breathing new life into old ones.

Oil is pumped through a pipeline to the seaport Aktau, 190 kilometres away on the Caspian coast, which is the departure point for over 8m tonnes of oil and 1.5m tonnes of solid cargo. A legacy of the Soviet era, Aktau was built in the 1960s to produce uranium and plutonium for the military, and the city was a secret and closed to outsiders until the demise of the Soviet Union.

Today, the chemical factories are closed and the nuclear power station no longer functions. But the port is now the centre for the development of the offshore oil industry and a transport hub for ships crisscrossing the Caspian from Azerbaijan, Iran and Russia, exporting oil and wheat, and importing cars and machinery for the oilfields. Downtown, cranes intersect the skyline and the old Soviet apartment blocks have been spruced up and daubed with bright blue paint.

Facilities at Aktau are being upgraded to make it into a major industrial centre and hub for exports, but it doesn't have all the capacity for the anticipated Caspian oil boom.

A second port to bolster the region's oil export potential is being built at Kuryk, located 70 kilometres south of Aktau. Once this is completed, oil from the giant Kashagan field would then flow from Aktau to Kuryk for shipment across the sea to Baku and the newly completed Baku-Tbilisi-Ceyhan (BTC) pipeline.

Friends in the region

State-controlled KazMunaiGaz, which is building fleets of tankers to shuttle oil across the Caspian, is not just deepening the cooperation on energy and other resources with Azerbaijan. President Nursultan Nazarbayev entertained the Russian leader Vladimir Putin in Kenderlie last month in between trilateral energy talks involving their countries and the new Turkmenistan leader, President Gurbanguly Berdymukhammedov. Their get-together coincided with a summit taking place in Poland aimed at reducing energy dependence on Russia, which got nowhere.

The three CIS leaders, on the other hand, agreed to construct a pipeline to transport Turkmen natural gas to Russia along the Caspian coastline via Kazakhstan, a deal that analysts say eclipses EU plans for a trans-Caspian pipeline bypassing Russia.

China on its eastern frontier has not been forgotten either. The Chinese CITIC Group acquired the Kazakhstan oil assets of Canada's Nations Energy Company, for almost $2bn at the end of last year.

The deal allows CITC to develop the Karazhanbas oil and gas field until 2020. It has proven reserves of more than 340m barrels of oil and produces more than 50,000 barrels a day. A Sino-Kazakh oil pipeline, extending 962 kilometres from Atasu in central Kazakhstan to the Alataw Pass on the border with China, has also been completed.

Much of Kazakhstan's wealth is still controlled by relatives, friends and close associates of Nazarbayev, who doesn't have a fantastic track record of managing the country's natural resources. His son-in-law Timur Kulibayev is a senior executive of the parent company controlling KazMunaiGaz. And US banker James Giffin was indicted in 2003 for paying bribes to two top Kazakh officials in exchange for the signing of huge contracts for the sale of Kazakh oil and natural gas to Mobil Oil, Amoco, Texaco and Phillips Petroleum.

However, the country is opening up and KazMunaiGaz E&P, which is 60% owned by the national oil company, was floated last October with shares listed on the Kazakhstan and London stock exchanges.

Analysts say the appointment of independent directors had eased some worries about corporate governance at the company. Paul Manduca, the former European head of Deutsche Asset Management, former JP Morgan investment banker Christopher Cox and oil industry veteran Eddie Walshe were drafted in prior to the listing.

Manduca, who popped up in Astana last month at the company's annual meeting, admits that KazMunaiGaz E&P struggled to reach IFRS accounting standards demanded for the listing, but has since made strides to improve its corporate governance.

"Financial reporting is critical for shareholders to have confidence and even companies in the UK have struggled, so it goes to shows how far KazMunaiGaz has travelled," he says.

www.businessneweurope.eu

Putin's oil-rich ally knows which side his blini is buttered

The Irish Times


By Jason Corcoran

Letter from Kazakhstan: A billboard-sized photograph of Russian President Vladimir Putin shaking hands with his Kazakh counterpart, President Nursultan Nazarbayev, looms large over the Caspian Sea resort of Kenderli.

Nazarbayev entertained the Russian leader at his summer retreat on May 12th, in between trilateral energy talks involving their countries and the new Turkmenistan leader, President Gurbanguly Berdymukhammedov. Their get-together coincided with a summit taking place in Poland aimed at reducing energy dependence on Russia.

The three leaders agreed
to construct a pipeline to transport Turkmen natural gas to Russia along the Caspian coastline via Kazakhstan, a deal analysts say eclipses EU plans for a trans-Caspian pipeline bypassing Russia.

Nazarbayev was originally expected to attend the summit in Krakow, but pulled out of it at short notice to host Putin, which makes the caption under the giant image at Kendeli rather apt: "Always together, always forward."

Putin's policy of cultivating Russian oil and gas co-operation in central Asia has been most successful in Kazakhstan, where Russian companies are engaged in key oilfield and pipeline projects.

Kazakhstan's trade with Russia tripled over the past five years to $9 billion last year and Nazarbyev clearly knows which side his blini is buttered.

His summer getaway in the Mangistau region of Kazakhstan is surprisingly modest by
authoritarian leaders' standards but every effort was made to accommodate Putin. A guide at the resort let slip that management had illegally hacked into a satellite network so Putin could watch Russia take on Finland in the ice hockey world championships.

Stepping barefoot, as required, inside Nazarbyev's azure blue and yellow-painted
residence, you are struck by its ordinariness.

Granted, the view of the Caspian Sea from the balcony is breathtaking and guests would be impressed by the indoor pool, gymnasium, sauna, steam room and billiards room in the basement; yet the rooms are decorated almost tastefully without any gold-plated bathroom fittings or flattering portraits venerating Nazarbyev.

Black gold has transformed the world's ninth largest country by landmass. Billions of dollars are pouring into the country's coffers from Caspian oil and gas projects and the effect can be seen 210km down the coast at the seaport
Aktau. A legacy of the Soviet era, Aktau was built in the 1960s to produce uranium and plutonium for the military and the city was a secret and closed to outsiders until the demise of the USSR.

Today, the chemical factories are closed and the nuclear power station no longer functions. The port is the centre for development of the offshore oil industry, and a transport hub for ships crisscrossing the Caspian from Azerbaijan,
Iran and Russia, exporting oil and wheat, and importing cars and machinery for the oilfields.

Downtown, cranes intersect the skyline and the old Soviet apartment blocks have been spruced up and daubed with bright blue paint.

Russians make up about 35 per cent of Kazakhstan's population and monuments to Soviet
war dead are more fondly preserved than in other parts of the former USSR. A statue of a Russian jet fighter, frozen in mid-take-off, stands in front of the five-star Renaissance hotel and there is a whitewashed war memorial which resembles a missile silo opening.

Kazakhstan's wealth is controlled by relatives, friends and associates of Nazarbayev, who doesn't have a fantastic track record of managing the
country's natural resources. His son-in-law, Timur Kulibayev, is a senior executive of the Kazmunaigas parent company.

US banker James Giffin was indicted in 2003 for paying bribes to two high Kazakh officials in exchange for the signing of huge contracts for the sale of Kazakh oil and natural gas to Mobil Oil, Amoco, Texaco and Phillips Petroleum.

Nazarbayev has shown no sign of relinquishing the grip he has established in a series of elections criticised as seriously flawed by democracy watchdogs. Last week, he approved constitutional amendments allowing him to stay in office for
life, a move the opposition condemned as an attempt to establish a personality cult.

Yet western oil executives argue Nazarbayev has taken a leaf out of Putin's book by trying to stamp out corruption and improve the welfare and living standards of his people.

Eddie Walshe, an Irish oil veteran who worked for 35 years in oil and gas at BP and British Gas, was last year appointed as one of three independent non-executive directors to the board of Kazmunaigas before its listing on the London
Stock Exchange. "I was here with British Gas in the 1990s when things were fairly lively. They have a far way to go but the transformation today is unbelievable," said Walshe.