Private equity market in Kazakhstan
Private equity market in Kazakhstan
“Private Equity Market in Kazakhstan” report prepared by KPMG team at the initiative of Kazyna Capital Management is the first public review of its kind related to the private equity market in Kazakhstan.
The key stages of Kazakhstan economic development were analysed in the context of private equity and Kazakhstan model of dealing with private equity was identified. KPMG database of M&A market in Kazakhstan was used to estimate the volumes of M&A and private equity market over the past 10 years. We have determined the level of penetration of private equity in Kazakhstan economy and estimated the potential proceeding from the benchmarks of comparable countries.
In addition to analysis of M&A and private equity statistics, 35 interviews were held with the market players (including the top managers of international investment funds, representatives of the quasi-public sector, domestic industry experts and investors, as well as managers and owners of local enterprises). Interviewed were also representatives of 100 local entities. Therefore, the urgent problems, trends and opinions on prospects of the market development have been determined.
A number of success stories of PEF cooperation with Kazakhstan companies was investigated in details and recommendations were developed.
The average annual volume of M&A market in Kazakhstan over the past 10 years was USD 4.8 billion – its dynamics correlated with the economic situation in the country. The average annual volume of private equity appeared to be equal o USD 160 million. Totally over 10 years 1,340 M&A transactions for USD 53.4 billion and 100 PE transactions for USD 1.8 billion have been performed with Kazakhstani assets. The total amount of 61 PE exit transactions during the period from 2008 to 2018 was USD 6.4 billion.
At the same time, currently there is a trend in Kazakhstan evidencing that Kazakhstan PE market is still underdeveloped:
- There is a dearth of high-quality projects, which may provide the desired rates of return against the risks involved.
- Project exit opportunities are limited.
- Local classic PEFs are funded mostly through quasi-public institutions.
The key categories of problems that affect the PE market development in Kazakhstan are as follows: structure of the economy and political risks, development level of capital markets, quality of human capital and the mindset of entrepreneurs, the ecosystem of the private equity market (including legislation) as well as transparency and confidence to the instrument of equity investments).
In terms of PE/M&A and PE/GDP ratios, Kazakhstan lags behind Malaysia, Russia, Brazil, Indonesia, and the Asia-Pacific Region by 2-2.7 times. Hence, the Kazakh private equity market is undersaturated and has certain growth potential up to an annual volume of USD320-430 million.
The PE/M&A ratio in Kazakhstan is ~3.7%, which is 2.7 times less than the average value in the Asia-Pacific Region and is 3.6 times lower than the worldwide level.
Meanwhile, Kazakhstan looks rather attractive compared with other emerging markets. Subject to proper development of the PE infrastructure, including development of the legal framework, a deepening of the financial markets, and market players increasing their professional competences, Kazakhstan will be able in the coming years to not only ensure a stable inflow of investments, but also create the prerequisites to facilitate the sustainable development of the economy.
© 2022 KPMG. KPMG Audit LLC, KPMG Tax and Advisory LLC and KPMG Valuation LLC, companies incorporated under the Laws of the Republic of Kazakhstan, member firms of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.