Kazakhmys Digs For Hong Kong Investors
May 25. Wall Street Journal
By Philippe Espinasse
Kazakh miner Kazakhmys PLC is following in its peer Vale SA’s footsteps in seeking a secondary listing in Hong Kong, writes Dow Jones Investment Banker. Like Vale, China is one of Kazakhmys’ largest consumers, so a secondary listing in Hong Kong makes sense insofar as it boosts the company’s profile, though it’s less clear what’s in it for investors.
Kazakhmys PLC, an LSE-listed natural resources group with its main assets in Kazakhstan, has filed to list in Hong Kong by the end of June. This is aimed at raising its profile in the region, which accounts for almost half of its revenue. With no new money to be raised and no shares to be sold, the deal itself will do little for investors but there may be action for bankers, including M&A and financing deals, down the line.
Kazakhmys’ secondary listing is being sponsored by no fewer than three major houses: Citi, China’s CICC and JP Morgan, whose Vice Chairman for European Investment Banking, Lord Renwick, sits on the board and which previously sponsored the group’s listing in the U.K.
It’s hard to believe that these banks would invest a significant amount of time, effort and cost in a simple listing by introduction, without significant corporate finance business also being lined up. Kazakhmys’s strategy includes acquisitions and it also intends to raise both debt and equity. Net borrowings of only $350 million (with total equity of $8.2 billion) leaves Kazakhmys with plenty of room for maneuver.
Chairman Vladimir Kim owns 27.9% while 26% is held by the Kazakh government. Kazakhmys is one of the world’s largest integrated copper producers. Active in silver, gold, zinc and coal, it holds strategic stakes in Eurasian Natural Resources Corporation PLC (ENRC) (26%), also listed on the LSE, and in Ekibastuz GRES-1 (50%), Kazakhstan’s largest power plant. Floated in London in 2005, it now has a market capitalization of $10.4 billion. It’s also a member of the FTSE 100 index-which separately also includes Eurasian.
It’s easy to understand the attraction of a secondary listing in Hong Kong for Kazakhmys. Following in the footsteps of Vale S.A. and Switzerland-based Glencore, a listing in Asia is seen as boosting its profile with China, the world’s largest and fastest-growing copper market. In 2010, 48.6% of the company’s revenue was attributable to China, one of the key drivers behind the almost 30% annual growth in global consumption and production of refined copper over the last decade, driven by the building industry as well as electrical and electronic products. In 2009, Kazakhmys secured a $2.7 billion loan facility from China Development Bank, and it signed an MoU for a joint venture last year with Jinchuan Group Ltd, China’s largest producer of nickel, to develop its copper deposit in Aktogay.
Although formally incorporated in the U.K., Kazakhmys would be the first company from Kazakhstan to list in Hong Kong. Kazakhstan shares a long border with China, but Kazakh companies have traditionally chosen London for their offshore listings, with 10 groups from the Central Asia nation quoted there. While its share price has taken a hit this year as commodity plays have been rattled, Kazakhmys has still posted a 440% valuation jump since 2009.
What the listing would do for investors is less obvious. Kazakhmys is planning to list in Hong Kong without raising capital or offering shares to investors. Brazil’s Vale, which listed depositary receipts in Hong Kong in the same fashion in December 2010, now achieves an average daily trading volume in Hong Kong of less than $250,000-a pitiful amount for a company capitalized at more than $155 billion-and only 0.02% of its shareholders are recorded in Hong Kong. London is where Kazakhmys’s trading volume is and will remain.
It may have to dig for a while to secure shareholders in Asia, but do expect Kazakhmys to unearth more value, not least for investment banks.
Philippe Espinasse worked as an investment banker in the U.S., Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong.