Project

Topic: “People’s” IPO of Kaz Munay Gas

Course: Cases in Finance

Instructor: Razzaque H Bhatti

Student: Amireshov Talgat ID20071230

[e-mail]

Almaty, 2012

Introduction

In final project I decide to take KazMunayGas Join-Stock Company in Kazakhstan which is the one of the leading company in country.

Firstly, I explain what the program People’s IPO is and when this idea firstly was spoken and when it started.

Secondly I briefly describe company overview also mentioned KMG constructed after merger of EmbaMunayGas and UzenMunayGas

In project I analyze the company’s financial report mainly I make valuation on Discounted Cash Flow based on Annual reports focused on Consolidated Balance sheet and Income statement.

Further I valuate the Weighted Average Cost of Capital, then Discounted Cash Flow and at the result descried why in my calculation I have positive DCF.

At the end, I present corrective actions to improve DCF and conclude project with recommendation.

Kaz-Munay Gaz’s Initial Public Offering

February 14, 2011 Nursultan Nazarbayev at the 13th Congress of the Party "Nur Otan" in Astana on Friday instructed to provide accommodation to the public shares of state companies such as "Samruk-Energo", KEGOC, "Kazpost." In the next stage, in 2012-2013, put the stock market shares of National Company "KazMunayGas", "Kazakhstan Temir Joly", "Kazatomprom".

As you know, the program "People's" IPO, in which planned to sell stakes in Kazakhstan's most attractive companies with state participation, the government implemented to encourage the further development of the stock market of the country and improve the financial literacy of the population.

In general, within the framework of the "people's IPO" is planned to implement the population and the pension fund from 5% to 15% of the shares of state companies.

The authorities expect that the demand for pre-fininstrumenty in the "people's" IPO among individuals and pension funds (NPF) is $ 300-500 million of them current demand on the part of the population is estimated at $ 100-200 million, the demand from pension funds state-owned shares - at $ 200-300 million.

It was reported that the program "People's IPO» in Kazakhstan will be implemented in several stages. The government expects the participation of not less than 160 thousand individuals, and all the savings fund of RK.

Identified candidates for the company's IPO: 1st tier - "KazTransOil», KEGOC, Air Astana, the 2nd tier - JSC "KazTransGas", JSC "KazMorTransFlot", "Samruk-Energo", 3rd - AO "Kazakhstan Temir Joly", JSC "Kaztemirtrans."

Among them is first-tier companies will be displayed in II-III quarters of 2012.

Second-tier companies will be displayed in 2013, third-tier companies - in 2014-2015. After the 2015 is supposed to consider the possibility of withdrawal of the IPO companies such as JSC "KazMunayGas" JSC and "Kazatomprom".

History

KMG EP was created in 2004 through the merger of JSC UzenMunaiGas (Uzen)

and JSC EmbaMunaiGas (Emba). These are core assets of the company in terms of reserves and production. Both Emba and Uzen are at an advanced stage of production so further growth was sought through raising more funds and acquiring more assets. In Sep 2006, KMG EP carried out its IPO on the KASE, along with a placement of GDRs on the LSE. The company raised approximately $2bn. A proportion of the funds was used a year later to complete two acquisitions. In Apr 2007, KMG EP acquired a 50% stake in JV KazGerMunai LLP for $969mn. In Dec 2007, KMG EP acquired a 50% stake in CCEL (KaraZhanbasmunai) for $150mn cash and $780mn debt (see more on the deal structure in KarazhanBasMunai: A portfolio cash cow). In Oct 2009, KMG EP reached an agreement on the purchase of 33% of PetroKazakhstan Inc from NC KMG through the acquisition of 100% of KMG PKI for $100mn cash and the assumption of about $1bn in debt. Revenue and net income grew (see Figures 16-17) due to oil price growth in the international market and production growth. The company has been growing production at a rapid pace and currently plans to stabilise the production rate at the 2008 level (see Figure 18). Growth of reserves was not significant (see Figure 19) as assets are mature and well developed.