Risky Business: Kazakhstan, Kazakhmys plc and the London Stock Exchange

Kazakh com­pa­ny on FTSE 100 a risk for investors, says Global Witness

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*Supporting doc­u­ment: President Nazarbayev’s hotel bill from his offi­cial vis­it to the UK in 2006.  This was sent to Kazakhmys plc (see Risky Business p.30).  

Kazakhmys plc, a FTSE 100 com­pa­ny which mines cop­per in the Central Asian nation of Kazakhstan, failed to declare poten­tial­ly key infor­ma­tion about its share­hold­ers and direc­tors when it list­ed on the London Stock Exchange, there­by expos­ing investors to unquan­tifi­able risk, warns a new Global Witness report.

Risky Business: Kazakhstan, Kazakhmys plc and the London Stock Exchangrais­es seri­ous con­cerns about London’s “light-touch” mar­ket reg­u­la­tion and argues that it would be in the pub­lic inter­est for com­pa­nies like Kazakhmys to be required to pro­vide much more infor­ma­tion to investors about polit­i­cal risk.

Kazakhstan is an autoc­ra­cy ruled by President Nursultan Nazarbayev, who enjoys immu­ni­ty from pros­e­cu­tion despite hav­ing alleged­ly received bribes from for­eign oil com­pa­nies in the 1990s in the so-called Kazakhgate scan­dal. But investors were not told when Kazakhmys list­ed that cer­tain senior man­agers (who own near­ly half the com­pa­ny’s shares), have close polit­i­cal ties to Nazarbayev.

Investors, includ­ing ordi­nary peo­ple sav­ing for their pen­sions, need to know the risks around Kazakhmys because its shares con­tribute to the FTSE 100 index. But because UK reg­u­la­tion is so inad­e­quate, we know lit­tle about how senior man­agers, who are also its major share­hold­ers, relate to President Nazarbayev,” said Tom Mayne, a cam­paign­er at Global Witness.

Numerous sources, includ­ing for­mer mem­bers of the Kazakh rul­ing elite, have told Global Witness that cer­tain man­agers owe their posi­tions to Nazarbayev. These alle­ga­tions are unproven but need to be tak­en seri­ous­ly because they raise legit­i­mate con­cerns that Nazarbayev may be able to undu­ly influ­ence the com­pa­ny’s deci­sions in ways which are detri­men­tal to share­hold­ers’ inter­ests. There is also a risk that if Nazarbayev los­es pow­er, his asso­ci­a­tion with Kazakhmys exec­u­tives could lead the new gov­ern­ment to take actions that hurt the company.

Global Witness’s report shows that Kazakhmys plc’s list­ing prospec­tus — the key doc­u­ment which investors rely on when a com­pa­ny lists on the stock exchange — omit­ted poten­tial­ly vital infor­ma­tion about the biogra­phies of its senior man­agers. For exam­ple, the chair­man of Kazakhmys’ main oper­at­ing sub­sidiary is Nazarbayev’s for­mer chief-of-staff. Global Witness’ report also reveals dis­crep­an­cies in the dec­la­ra­tions of the com­pa­ny’s share­hold­ing structure.

The Financial Services Authority (FSA), which reg­u­lates the London mar­ket, refused to tell Global Witness what due dili­gence it had done on Kazakhmys on the grounds that it was “not in the pub­lic inter­est”. Kazakhmys itself declined to answer indi­vid­ual ques­tions raised by Global Witness but said there had been a “very rig­or­ous and com­pre­hen­sive” process to pre­pare for the list­ing, includ­ing “thor­ough due diligence.”

In regions where the rule of law is weak, rul­ing elites may seek favours, pay­ments or even influ­ence over man­age­ment, to the detri­ment of share­hold­ers. This is a major risk in Kazakhstan. The FSA must stop pre­var­i­cat­ing and inves­ti­gate our find­ings.” said Mayne.

Global Witness is call­ing for wider reforms of stock mar­ket list­ing rules in the UK and oth­er major secu­ri­ties mar­kets, to cre­ate more trans­paren­cy about the activ­i­ties of oil and min­ing com­pa­nies and ensure that investors have the full infor­ma­tion they need to assess risk.

Original source : GLOBAL WITNESS