Kazakh Billionaire Says He’s Got Nothing to Hide
Nov 14. Bloomberg Markets Magazine
By Nariman Gizitdinov
When Bulat Utemuratov’s boss told him to go to Europe and open the first trading house for their newly independent Kazakhstan, his reaction was pure Soviet. “Oh no, They want to exile me,” Utemuratov remembers thinking with alarm.
The year was 1992. The Soviet Union had just been disbanded, and Russia had introduced its own ruble, sparking hyperinflation in former republics such as Kazakhstan that were still using the old Soviet currency. The first, and still only, president, former Politburo member Nursultan Nazarbayev, was desperate for hard currency.
His plan: dispatch Utemuratov, then a 34-year-old economics teacher-turned-career apparatchik, to Vienna as a middleman between the Central Asian republic and European companies purchasing Kazakh metals, Bloomberg Markets magazine will report in its December issue.
Utemuratov’s superior, Syzdyk Abishev, head of the brand-new External Economic Affairs Ministry, put him at ease. “You don’t understand, Bulat,” Utemuratov recalls Abishev saying. “It’s an opportunity for you,” Utemuratov said.
And so it proved to be. While working for the Kazakh government, Utemuratov also went into business on his own – the first step en route to becoming one of the richest people in Central Asia, with a net worth of $3.4 billion as of Nov. 12, according to the Bloomberg Billionaires Index.
Within a year of landing in Austria, Utemuratov says, he helped broker Kazakhstan’s first line of credit, from Vienna-based Bank Creditanstalt. On the side, he says, he was making his first million dollars by buying zinc and copper from Kazakh miners and reselling the metals abroad.
As Utemuratov prospered, so did Kazakhstan. The world’s largest landlocked country is rich in natural resources, including 4 percent of the world’s zinc and 1.8 percent of its oil. While the economy more or less flat-lined during the 1990s, it soared through the 2000s. It has expanded 12-fold since Nazarbayev was first popularly elected president in December 1991.
In that election, Nazarbayev, who had been installed as head of state the year before by the Supreme Soviet, was the only candidate. During the 1990s, he consolidated his power, pushing Russian-style privatization programs that enriched a handful of insiders. In 2007, Nazarbayev signed a law exempting his presidency from a constitutional two-term limit. In 2010, the Kazakh parliament voted unanimously to declare him “leader of the nation” for life, giving him immunity from prosecution.
Under Nazarbayev, Kazakhstan has had a contentious record on human rights. In 2010, the country of 17 million people became the first former Soviet republic to head the Organization for Security and Cooperation in Europe, whose mandate includes the promotion of individual rights, freedom of the press and fair elections.
Yet a 2010 report by the U.S. State Department criticized the country for abuses such as the torture of prisoners and arbitrary arrest and detention. It also censured Kazakhstan for condoning official corruption, restricting freedom of speech and the press, and imposing electoral rules that stifle political opposition.
Since the spring of 2011, the Nazarbayev government has paid 8 million pounds ($12.9 million) a year to former U.K. Prime Minister Tony Blair’s advisory firm and London-based public relations outfit Portland Communications for guidance on elections, the judicial system and other domestic matters.
“While continuing to invest heavily in boosting its image abroad, the government of Kazakhstan has also worked more aggressively to quash perceived threats to the regime since 2010,” Freedom House, a Washington-based monitoring organization, said in a report this year, citing 2012 national security legislation.
In an interview with Bloomberg Markets (“Empire Builder,” May 2013), Blair said it’s important to put Kazakhstan’s record in context. “I don’t dismiss the human rights stuff at all,” he said. “There’s a whole new generation of administrators there who are reformers, and we’re working with them.”
It’s difficult for Utemuratov to avoid the taint of Kazakhstan’s reputation as a dubious place to do business, says Timur Issatayev, who was once chairman of Verny Capital JSC, the private-equity firm that Utemuratov’s subordinates formed in 2006, primarily to manage his money.
A Standard & Poor’s survey in 2009 – the last year the firm did such a study – gave the 22 largest publicly listed Kazakh companies a combined score of 44 for transparency, worse than Russia’s 56 and China’s 46.
Issatayev says perceptions haven’t changed much.
“Foreign investors and companies still don’t trust us,” he says. “That’s a problem.”
In many emerging markets, the line between public service and personal enrichment is often a blur, says Kate Mallinson, a partner at London-based political risk advisory firm GPW & Co., who studies Central Asia.
“As in many other countries globally, public officials in Kazakhstan have historically had access to significant public funds and strategic energy resources as well as the knowledge and ability to control budgets, public companies and contracts,” she says.
Utemuratov, 56, defends the wealth he’s amassed while serving as Nazarbayev’s loyal lieutenant.
When Utemuratov, an athletic-looking man who heads the Kazakh Tennis Association and counts 13-time Grand Slam tennis champion Rafael Nadal as a friend, sat down with Bloomberg Markets for what turned out to be the first of three interviews, it marked the first time he had spoken at length with any journalist.
He says he never used his government positions or his friendship with Nazarbayev to get rich inappropriately.
“So I have nothing to hide,” he says in the presidential suite of the Rixos Borovoye hotel on the birch-and-pine-studded shore of Lake Shuchie in northern Kazakhstan.
Nazarbayev, 73, was guest of honor at a party to celebrate the luxury resort’s opening in December. For the occasion, Utemuratov hired the English pop duo Pet Shop Boys and the Kazakh national synchronized-swimming team to perform.
Utemuratov says that while others may be tempted to accept bribes or embezzle funds, such behavior isn’t only immoral; it’s bad business.
“I just can’t allow myself to embarrass President Nazarbayev,” he says. “I purchased all of my assets on the secondary market from private owners.”
Utemuratov was new to the world of business when he arrived in Vienna in August 1992. After he helped to negotiate Kazakhstan’s loan deal with Bank Creditanstalt, Nazarbayev named him first deputy minister for external economic affairs, one rung below cabinet minister.
In that capacity, Utemuratov went back to Almaty, the country’s largest city and former capital, at the end of 1993 with his wife, Azhar, a doctor by training, who was 38 at the time, and their sons, Alidar and Anuar, then 14 and 10.
It was a heady move for Utemuratov, who as a young man in Almaty had run a Soviet state-owned grocery store and who, in Austria, had experienced a new way of life.
“I was a free, liberated, confident man, no longer uptight and afraid of everything,” he says.
In June 1995, Utemuratov founded Almaty Trade-Finance Bank CJSC, which he renamed ATF Bank JSC in 2002.
He says owning a bank helped him build ties with people who would become rich and powerful in their own right. Karim Massimov, ATF’s first chief executive officer, is now Nazarbayev’s chief of staff, and Timur Kulibaev, ATF’s first chairman, is the husband of one of Nazarbayev’s three daughters, Dinara, 46.
In 1996, Utemuratov says he asked for, and was granted, the ambassadorship to Switzerland. He says he spent his three-year stint in Geneva in the 1990s establishing the Kazakh embassy and improving relations with Swiss businesses, including ABB Ltd. (ABBN), Credit Suisse Group AG, Nestle SA (NESN) and UBS AG. In later years, Credit Suisse and UBS would underwrite bonds issued by state-owned Kazakh companies.
Over the next 15 years, Utemuratov served as presidential economic aide, head of the powerful Kazakh Security Council, chief of the presidential property department and presidential adviser.
Being in government was no obstacle to amassing wealth: He pursued his own business interests in a way that he says was completely legal under Kazakh law. He invested in mining, hotels, telecommunications and media. Since May 2010, he’s been a special envoy to neighboring Kyrgyzstan, where he owns a mobile-telephone company and a cement plant.
It’s not uncommon in Kazakhstan for government officials to control big companies. Defense Minister Adilbek Zhaksybekov is a majority shareholder in Tsesnabank JSC. Erbolat Dosayev, minister for trade and economic development, and Environment Minister Nurlan Kapparov own stakes in Lancaster Group, a holding company with a unit that did work at Kashagan oil field, Kazakhstan’s largest.
Nazarbayev son-in-law Kulibayev, who with his wife controls Halyk Savings Bank of Kazakhstan JSC, was deputy CEO and then CEO of Samruk-Kazyna JSC, the Kazakh sovereign wealth fund, from October 2008 through December 2011.
Utemuratov says a turning point for him as a businessman came in 2007 on his 50th birthday. It started out well – selling ATF Bank to UniCredit Bank Austria AG, a unit of Italy’s largest lender, UniCredit SpA (UCG), for more than $2 billion, the most ever paid for a Kazakh bank.
Utemuratov says the transaction soon became a public relations nightmare for both him and UniCredit. Within a year, Lehman Brothers Holdings Inc. had collapsed, triggering a global credit squeeze that exposed questionable lending and accounting practices at banks all over the world, including ATF.
ATF’s biggest competitors in Kazakhstan – BTA Bank JSC, Alliance Bank JSC and Temirbank JSC – were all forced to default, leading to a combined restructuring of more than $20 billion in debt.
For UniCredit, the result was losses at ATF exceeding 2 billion euros ($2.76 billion), UniCredit Bank Austria CEO Willibald Cernko disclosed on March 18. Cernko made his statement after UniCredit sold ATF to Galimzhan Esenov, son-in-law of Almaty Mayor Akhmetzhan Esimov, for about $550 million and a pledge to guarantee as much as $631 million in bad loans.
ATF wasn’t a paragon of transparency, says Issatayev, who was ATF’s CEO before he began running Verny, which says it manages about $4 billion.
“One of the problems at ATF was its ownership structure, which was a pile of offshore companies,” he says. “There was a culture in the country of hiding ownership structures.”
Utemuratov didn’t have to declare himself to Kazakh regulators as a beneficial owner of ATF for more than a decade, until December 2006, as he was preparing to sell it. Since then, he’s bought one bank, ForteBank JSC, and started another, Kassa Nova Bank JSC; in both cases he divulged his ownership from the outset.
“I decided after selling ATF Bank to UniCredit that we must stop using offshore companies and become more transparent,” Utemuratov says. “Everything must be clean.”
Transparency doesn’t come naturally to the business potentates who emerged from the chaos – and opportunities – left by the collapse of the Soviet Union, says Mikhail Fridman, one of post-Soviet Russia’s first non-state bankers. Fridman, whose net worth was $16.1 billion as of Nov. 12, is Russia’s third-richest man, according to the Bloomberg Billionaires Index.
He and Utemuratov own stakes in Kazakh mobile-phone operator KaR-Tel LLP. In a telephone interview, Fridman says the opaqueness that characterizes many post-Soviet deals can be a handicap when a business begins to expand internationally.
“Utemuratov understands that we live in a transparent world,” he says.
Utemuratov’s late-in-life conversion to transparency has done little to cramp his aggressive business style. In October, He signed a nonbinding deal with Samruk-Kazyna, the Kazakh sovereign wealth fund, to buy stakes in Alliance and Temirbank. Alliance, where Issatayev is now CEO, faces the possibility of a second debt restructuring, according to Fitch Ratings.
Last year, Verny sold its controlling stake in zinc producer Kazzinc JSC to Glencore International Plc for a 2.5 percent share of the Baar, Switzerland-based commodities company and $400 million in cash.
Glencore later merged with Xstrata Plc, giving Verny – and therefore Utemuratov – a 1.33 percent stake in Glencore Xstrata Plc (GLEN), the world’s largest publicly traded commodities supplier, which had a market value of £43.8 billion as of Nov. 12. In February, Verny sold its remaining 30 percent of Kazzinc to Samruk-Kazyna for $1.65 billion.
Utemuratov says his focus now is on expanding his banks, acquiring deposits of rare-earth metals and nickel, and developing his other businesses.
In June, he broke ground on the construction of Talan Towers in Astana, the city that Nazarbayev made Kazakhstan’s capital in 1998. The $300 million twin high-rises – which Utemuratov says will be the country’s first energy-efficient office, retail and residential complex – will house Glencore Xstrata’s regional operations and Verny Capital’s headquarters.
Nothing Utemuratov does is ever far removed from Nazarbayev and the center of power in Kazakhstan: The office towers will overlook the gleaming blue-and-gold dome of the presidential palace.