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Business comment: A dangerous ripple effect

NOV. 13 2015 (The Conway Bulletin) — The whole post-Soviet region has faced a steep economic downturn over the past year, leading to regional trade imbalances that have travelled across borders.

Initially, the fall in the value of the Russian rouble hit the Kazakh tenge. Despite a 20% devaluation in Feb. 2014, the tenge’s peg to the US dollar made it increasingly expensive against the rouble. When the rouble started to lose double- digit value against the US dollar, the tenge held its US dollar trading point, making it increasingly expensive. For the first eight months of this year, cheap Russia goods flooded Kazakhstan.

Eventually, in August, the Kazakh Central Bank effectively ordered another devaluation by ditching a US dollar peg. The graph below illustrates this clearly. It shows the rouble/$1 rate and the rouble/tenge rate matching each other until August. The value of the rouble, according to the graph, halves against the US dollar and the tenge.

In August, though, there is a sharp correction in the trading rate of the rouble/tenge. It diverges, violently almost, with the rouble/$1rate. The graph shows that the tenge is still stronger than the rouble compared to June 2014, but the differential is reduced.

And this is where the ripple effect carried through to neighbouring Kyrgyzstan.

Thee blue line on the graph represents the rouble/som rate. It, broadly, matches the peaks and troughs of the rouble/$1 rate, suggesting an informal peg to the US dollar.

The Kyrgyz Central Bank, though, has clearly tried to devalue the som independently too, as the rouble/som rate diverges slightly from the rouble/$1 rate.

The yellow line shows the tenge/som rate, and clearly depicts the change in relative values of the two neighbours’ currencies. The som has been weaker against the tenge for most of the year, as shown by the fairly shallow but pronounced trough. This changes after the tenge devaluation in August.

A currency domino effect, although slower than analysts had predicted, is rippling through Central Asia. The rouble is an optimal benchmark to observe this phenomenon.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Tajikistan rejects Russian patrol

NOV. 12 2015 (The Conway Bulletin) – Russia is not going to send guards back to patrol Central Asia’s border with Afghanistan, said Russian Colonel-General Alexander Manilov, despite worries the Taliban is spreading northwards. Russian border guards used to patrol the Tajik-Afghan border until 2005. Tajikistan has said it doesn’t want foreign border guards patrolling its frontiers.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Russian to install missiles in Armenia

NOV. 11 2015 (The Conway Bulletin) – Russia will install an air defence missile system in Armenia, RIA- Novosti news agency reported quoting a statement from the Kremlin, a rival, perhaps, to the US missile system in Eastern Europe. By stationing missiles in Armenia, Russia is pulling it tighter into its field of influence.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Turkmenistan signs Afghan power deal

NOV. 8 2015 (The Conway Bulletin) – Turkmenistan’s President Kurbanguly Berdymukhamedov has signed a decree paving the way for Turkmen electricity supplies to Afghanistan until 2027, a move seemingly designed to increase stability in its southern neighbour as well as lock in a long-term client.

The Turkmen government announced the agreement through one of its official websites turkmenistan.ru.

It said that the contract now being finalised between Turkmenenenergo and their Afghan counterparts would run from Jan. 1 2018 until Dec. 31 2027.

It’s important because it highlights both Turkmenistan’s ability to negotiate long-term power deals for its neighbours and also its determination to help Afghanistan stabilise.

Turkmenistan needs a stable Afghanistan for two main reasons. It wants the Afghan government to be strong enough to be able to control a resurgent Taliban and it also needs Afghanistan to be a stable transit partner for the proposed TAPI pipeline running from its gas fields to consumers in India.

TAPI is vital for Turkmenistan. It needs to diversify its client base for gas as it is over-reliant on China.

Turkmenistan has been investing heavily in its power generating infrastructure. It sees the sector as another way of projecting itself on the international stage.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Georgia Healthcare Group completes London IPO

NOV. 9 2015 (The Conway Bulletin) – In what is likely to be the only IPO on an international market by a company from Central Asia and the South Caucasus this year, Bank of Georgia completed the listing of its subsidiary Georgia Healthcare Group on the London Stock Exchange.

It sold a 29% stake in Georgia Healthcare Group, raising around £63m ($96m) to invest into two hospitals it has bought in the past couple of years in Tbilisi.

Georgia Healthcare Group is the largest private healthcare provider in Georgia, owning 42 hospitals and medical centres.

Although the IPO came in below the initial price range, Nikoloz Gamkrelidze, Georgia Healthcare Group’s CEO, was upbeat.

“A public listing enhances our ability to take advantage of the significant market growth prospects of the Georgian healthcare sector,” he said. “The primary proceeds will be used to fund our immediate growth plans, aimed at helping us achieve at least a doubling of our 2015 revenue by 2018.”

Reports earlier this year also suggested new legislation introduced by the Georgian government had forced Bank of Georgia to sell a large stake in its healthcare unit.

Georgia Healthcare Group had targeted a price range of 215-315p but instead had to settled for 170p, perhaps a reflection of the poor economic conditions in Emerging Markets in general and in the South Caucasus in particular. Since announcing the IPO in August, Bank of Georgia shares have lost 13% on the London Stock Exchange, possibly setting its healthcare unit up for its lower-than-hoped-for IPO pricing.

Even so, the Georgia Healthcare Group IPO, gave Western investors a rare chance to buy into the former Soviet Union. Over the past couple of years, London IPO plans from Kazakh companies in particular, have been shelved as an economic downturn triggered by low oil prices, worries about Emerging Markets and a recession in Russia bite.

Both Kazakhstan and Uzbekistan have announced they want to carve up some of their main state-owned companies and that they will look for IPOs on major international stock markets but these sales are a long way off.

Georgia Healthcare Group joins its parent company Bank of Georgia as the only two Georgian companies listed on the London Stock Exchange.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Armenia’s fish farm declares bankruptcy

NOV. 12 2015 (The Conway Bulletin) — Unable to repay its debt to the banks, Unfish, one of Armenia’s largest fish farms, declared bankruptcy. Unfish’s exports to Russia, its main market, have fallen by 50% due to the weakening of the rouble against the Armenian dram. Armenia’s Fish Farmer’s Union asked the government to prevent more bankruptcies.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Stock market: GHG, Nostrum, KAZ Minerals

NOV. 10 2015 (The Conway Bulletin) — As the Bulletin reports on its front page, Georgia Healthcare Group (GHG) listed on the London Stock Exchange with an initial share price of 170p on Nov. 9. The company listed 29% of its shares, valuing the company around £218m ($331m). By Friday its shares had dropped to 181p.

Oil and commodities companies lost ground on the London stock market after Brent and copper prices fell by 6% and 4.5% this week.

Linked to this fall in the price of Brent crude futures, Kazakhstan-focused Nostrum Oil & Gas shares were down 16% closing at 367.5p. Nostrum recorded an 8% fall on Thursday, placing its shares among the worst performers on the FTSE 250.

Cooper producer KAZ Minerals, formerly known as Kazakhmys, faired worse. Its shares fell by 20% over the week, closing at 80p.

Tethys Petroleum shares jumped by 53% on Monday following Olisol’s letter of intent to acquire its stakes, but finished the week down to 4.25p.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Uzbekistan buys high-speed trains

NOV. 10 2015 (The Conway Bulletin) – Uzbekistan’s railway company placed an order for 38m euros with Spanish train maker Talgo for two high-speed electric trains. The trains are designed for the upgrade of the Samarkand-Bukhara line.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

China launches another air-link with Georgia

NOV. 11 2015 (The Conway Bulletin) – China’s Southern Airlines launched a new route to Tbilisi from Urumchi in eastern China. The new route highlights China’s increased interest in Georgia and the South Caucasus. China has been boosting investments across the region.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Kazakhstan helps mortgage holders

NOV. 9 2015 (The Conway Bulletin) – Under a scheme designed to help people in Kazakhstan who hold mortgages in US dollars cope with the devaluation of the Kazakh tenge, the Central Bank said that it had refinanced 3,500 mortgages by Nov. 1. The programme will run until March or April 2016.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)