The Two Billion Dollar Mystery Behind The Ownership Of London-Listed Kazakh Fintech Kaspi

Last month, Kaspi.kv, the retail and fin­tech uni­corn from Kazakhstan, made head­lines around the world after a suc­cess­ful IPO on the London Stock Exchange at a $6 bil­lion dol­lar val­u­a­tion. It was cel­e­brat­ed as the largest inter­na­tion­al tech IPO in London of 2020.

But Kaspi is not a tra­di­tion­al tech start­up with hun­gry, dis­rup­tive founders and hard dri­ving investors. At the heart of Kaspi is a deal among three men and a pri­vate equi­ty fund involv­ing bil­lions of dol­lars that–despite scruti­ny from the London Stock Exchange, spon­sors and regulators–raises a whole host of questions. 

The two most impor­tant play­ers at Kaspi are its chair­man, Vyacheslav Kim, and CEO Mikhail Lomtadze, whose respec­tive 25% and 23% stakes are cur­rent­ly worth around $2 bil­lion each. But, work­ing along­side Moscow-based pri­vate equi­ty fund Baring Vostok, the jour­ney the duo took to become the largest indi­vid­ual share­hold­ers of the com­pa­ny is filled with plot holes.

The largest of which fea­tures one Kairat Satybaldy, a for­mer investor and the polit­i­cal­ly pow­er­ful nephew of Kazakhstan’s for­mer pres­i­dent Nursultan Nazarbayev. Satybaldy claims to have walked away from Kaspi in 2018, unload­ing a very sim­i­lar sized stake to the one now owned by Lomtadze. 

The Deal

In what’s described by a Kaspi spokesper­son as part of a “large trans­ac­tion,” Kim spent around $390 mil­lion buy­ing Kaspi stock in 2018. Then, accord­ing to the prospec­tus, he trans­ferred shares to Lomtadze that at the time were worth an esti­mat­ed $500 mil­lion, in exchange for a “cer­tain non-cash con­sid­er­a­tion” in December 2018 “pur­suant to a long-stand­ing arrange­ment encom­pass­ing their var­i­ous busi­ness interests.”

Added to a 9.9% stake giv­en to Lomtadze by Kim (as part of the same “arrange­ment”) pri­or to 2017–Lomtadze was grant­ed a total stake of 31% in Kaspi.

In 2019, Lomtadze’s own­er­ship dropped to 29%; it appears as though he may have sold part of his hold­ing to Goldman Sachs, which acquired a 4% slice of the com­pa­ny that year. Lomtadze now owns 23% of the com­pa­ny, accord­ing to fil­ings, worth $2.2 billion.

In a state­ment to Forbes, a Kaspi spokesper­son con­firmed the deal, which was made between Lomtadze and Kim in 2007, but said, “It’s not cor­rect to say that Mikhail was just giv­en his stake.”  Lomtadze “built” Kaspi, the spokesman says, adding that “it’s quite com­mon for entre­pre­neur­ial founders to own large equi­ty stakes in their busi­ness­es.” But Lomtadze is not a founder. He arrived at the bank that would become Kaspi as its CEO fol­low­ing an invest­ment in the bank by Baring Vostok, where Lomtadze was a partner. 

The spokesman for Kaspi did not explain how Kim came up with hun­dreds of mil­lions of dol­lars to buy Kaspi shares, nor on the exact terms of the 2007 deal that made Kim and Lomtadze equal part­ners. Kaspi said that it couldn’t com­ment on Kim’s “spe­cif­ic finan­cial arrange­ments” but added that “[t]he increase in Mikhail [Lomtadze]’s stake is due to the for­mal­iza­tion of his part­ner­ship agree­ment with Vyacheslav [Kim] and not relat­ed to his annu­al compensation.”

Kaspi con­firms that it took around 13 years—from 2007 until this year–for Kim and Lomtadze to “for­mal­ize their share­hold­er agree­ment.” It also says that because the com­pa­ny didn’t seek exter­nal cap­i­tal or pre-IPO fund­ing, oth­er than an invest­ment from Baring Vostok in 2006, there was–until now–no need to make the “agree­ment” for­mal or public.

Addressing the uncer­tain­ty about why an agree­ment between the pair was not made for­mal until “the very last moment,” Lomtadze claims in an inter­view con­duct­ed by a part­ner at PWC and pub­lished Tuesday on forbes.kz (Forbes Kazakhstan, an inde­pen­dent licensee of Forbes) that the two men’s rela­tion­ship was one of “com­plete trust and chemistry.”

Kaspi Conquers Kazakhstan

Kaspi’s mobile pay­ments and bank­ing app is used by around half of Kazakhstan’s 18 mil­lion people—and in less than a decade, the com­pa­ny has helped begin wean­ing the coun­try off using cash, claim­ing in September that dai­ly active users of the app had increased 172% over the pri­or year. Kaspi says it now accounts for 68% of all elec­tron­ic trans­ac­tions in Kazakhstan, a pay­ments foot­print almost twice the size of all its com­peti­tors com­bined, includ­ing Visa and Mastercard. “People saw how easy it made their lives,” says Dr Atanu Rakshit, assis­tant pro­fes­sor of eco­nom­ics at Kazakhstan’s Nazarbayev University.

With close ties to Kazakhstan’s gov­ern­ment, Kaspi has also emerged as the country’s unof­fi­cial nation­al online bank for pay­ing tax­es and fines, assum­ing a role that would oth­er­wise be filled by the civ­il ser­vice or a gov­ern­ment depart­ment, and fur­ther dri­ving new user growth across the coun­try. It even helped dis­trib­ute social ben­e­fits dur­ing the pandemic.

Revenues grew 32% to $740 mil­lion in the first half of 2020. Profits have jumped too, up 50% to $286 mil­lion, while pay­ment trans­ac­tions hit 718 mil­lion for the quar­ter end­ing September, Kaspi announced, up by 212% year-over-year, as their app quick­ly con­quered the coun­try dur­ing the pandemic. 

Although Kaspi’s suc­cess in Kazakhstan is clear, what remains unclear is how Kaspi’s puz­zling own­er­ship changes passed muster with the pow­er­ful insti­tu­tions scru­ti­niz­ing Kaspi’s pub­lic list­ing, name­ly book run­ners Morgan Stanley, Citigroup and Renaissance Capital, the U.K.’s Financial Conduct Authority and the London Stock Exchange. The con­cerned par­ties all referred Forbes to investor rela­tions at Kaspi.

Lomtadze, Kim And Kaspi

Kim, described in a Kaspi press release as a “math­e­mati­cian and physi­cist by train­ing, but an entre­pre­neur by call­ing,” found suc­cess in retail main­ly through launch­ing home elec­tron­ics chain Planet Electronics, which he exit­ed in the mid-2000’s, accord­ing to a Kaspi spokesper­son, around the time Kaspi “became his prin­ci­pal invest­ment.” Planet Electronics shut down in the late 2000s. Kim is also an investor and chair­man of the super­vi­so­ry board of super­mar­ket group Magnum, described by a local news agency in April as the largest chain in Kazakhstan.

In 2002, Kim, who was 32 at the time, bought Kaspiyskiy—then a recent­ly pri­va­tized bank—for an undis­closed sum. “It might have been a bit naive, but buy­ing a bank was a big trend. Every suc­cess­ful entre­pre­neur was buy­ing a bank, so we did too,” he was quot­ed as say­ing in a com­pa­ny state­ment in July 2019.

Lomtadze, who hails from neigh­bor­ing Georgia, speaks English and is the pub­lic face of Kaspi. One of his country’s ear­li­est free mar­ket fun­da­men­tal­ists, Lomtadze attend­ed Georgia’s first ever busi­ness school before start­ing an audit­ing firm in 1995 and then hop­ping over the pond for Harvard Business School. He grad­u­at­ed in 2002, the same year he met Michael Calvey, the American founder of Baring Vostok, in New York. “I don’t need any salary,” Lomtadze says he told Calvey at their first meet­ing, speak­ing to Forbes from Almaty in ear­ly November on a video call. “I just want to work with Baring Vostok.” Lomtadze sub­se­quent­ly joined Baring Vostok and became a part­ner in 2004. 

In 2006, Baring Vostok, invest­ed an undis­closed amount in Kaspisky (bank), lead­ing Lomtadze to join forces with Kim in 2007. They rebrand­ed Kaspisky as Kaspi the fol­low­ing year. The duo has since made at least five addi­tion­al invest­ments in Kazakh busi­ness­es, includ­ing com­pa­nies in bill pay­ments, car retail, and online clas­si­fieds. By June 2020,  Kim held around 31% of Kaspi, while Lomtadze held 25.9%, accord­ing to an audit­ed finan­cial statement.

Kairat Satybaldy

The third man with an impor­tant con­nec­tion to Kaspi is Kairat Satybaldy, the nephew of Kazakhstan’s for­mer long­time pres­i­dent Nursultan Nazarbayev. Often described as the son Nazarbayev nev­er had, Satybaldy is a lead­ing fig­ure in the rul­ing Nur Otan Party, and a mem­ber of the country’s busi­ness and polit­i­cal elite.

Satybaldy claims to have first acquired a stake in Kaspi in 2015, and then became one of the three largest three share­hold­ers along­side Kim and Baring Vostok. According to Kaspi’s com­pa­ny accounts, Satybaldy owned 30% of the firm as of December 2017, while Kim owned 21% and Baring Vostok 38%.

Satybaldy then appeared to cash out pri­or to Kaspi’s failed 2019 London IPO attempt. This year’s Kaspi IPO prospec­tus shows that between July and September 2018, Satybaldy (spelled Satybaldyuly in the doc­u­ment) unloaded his entire share­hold­ing in the com­pa­ny through a series of sales on the Kazakhstan Stock Exchange (KASE), and com­plet­ed his exit on October 1, 2018. (The com­pa­ny was list­ed on the Kazakh stock exchange but had just four main share­hold­ers.) The prospec­tus shows that this is the same peri­od dur­ing which Kim bought and “trans­ferred” near­ly 39.9 mil­lion shares to Lomtadze. 

Kate Mallinson, asso­ciate fel­low at London-based pol­i­cy insti­tute Chatham House, says the move­ment of “one stake from one share­hold­er to anoth­er with lit­tle expla­na­tion sug­gests a typ­i­cal Kazakh play­book [of] cor­po­rate behavior.” 

Adding, “If Satybaldy’s name had been on the own­er­ship [this year], red flags would have alert­ed any finan­cial insti­tu­tion inter­est­ed in the list­ing. Behind the scenes, the extend­ed Nazarbayev fam­i­ly own most of the bank­ing sec­tor and Kairat [Satybaldy] is one of the most influ­en­tial eco­nom­ic actors.”

Despite step­ping down as Kazakhstan’s pres­i­dent in 2019, Nazarbayev remains the sin­gle biggest source of polit­i­cal and eco­nom­ic pow­er in the coun­try, says Mallinson, describ­ing Satybaldy as a “trust­ed nephew” of Nazarbayev and “one of the most pow­er­ful play­ers behind the scenes in Kazakh elite pol­i­tics.” In oth­er words, Satybaldy is a polit­i­cal­ly exposed per­son and would have drawn scruti­ny from reg­u­la­tors if he remained a con­trol­ling share­hold­er ahead of the IPO.

Dosym Satpayev, a direc­tor of the Risk Assessment Group, an Almaty-based con­sul­tan­cy firm, says that the “point of view” among geopo­lit­i­cal ana­lysts in Kazakhstan is that “the depar­ture of Kairat Satybaldy from Kaspi Bank was for­mal and is pre­cise­ly con­nect­ed with the IPO, since the pres­ence of Kairat Satybaldy among the bank’s share­hold­ers could neg­a­tive­ly affect the bank’s rep­u­ta­tion dur­ing the IPO.”

Satpayev sug­gests, “Kairat Satybaldy trans­ferred (or sold) his shares to oth­er share­hold­ers” and these share­hold­ers “may” have “entered into a safe agree­ment with him that, as nom­i­nal own­ers of the asset, they will take into account his inter­ests and return the shares upon demand to the true owner.” 

Satpayev sug­gests that Satybaldy could become a share­hold­er of Kaspi again, using an off­shore enti­ty to do so. Satybaldy could not be reached for com­ment. The Kazakhstan embassy in London described Satybaldy as a “pri­vate cit­i­zen” and referred Forbes to direct inquiries to Kaspi.

A Kaspi spokesper­son tells Forbes that Satybaldy was a “finan­cial investor with no direct involve­ment in the com­pa­ny” and has “no con­nec­tion in any capac­i­ty with the com­pa­ny now.” Satybaldy was report­ed by a Kazakhstan news web­site in April 2019 as stat­ing that his “invest­ment strat­e­gy” is to “invest for three years on aver­age” and he “ful­ly exit­ed from Kaspi.kz, sell­ing my stake to the com­pa­ny and oth­er share­hold­ers” in 2018.

Kaspi has long main­tained an open dia­logue with top politi­cians in Kazakhstan and Kim once served as an advi­sor to the prime min­is­ter. “In emerg­ing mar­kets, every­thing is rela­tion­ship-dri­ven,” he said in 2019, speak­ing about  Kaspi’s pri­vate-pub­lic posi­tion in a com­pa­ny state­ment. With such a con­nec­tion to the polit­i­cal cen­ter in Kazakhstan, it remains pos­si­ble that Satybaldy has not com­plete­ly stepped away from Kaspi, although Kaspi refutes this allegation.

Original source of arti­cle : FORBES