The stock market in Kazakhstan has made significant strides in improving its infrastructure and expanding its capital-raising capacity over the past several years, according to Timur Turlov, Founder and CEO of Freedom Holding Corp (Nasdaq: FRHC).
“I am very happy that we have established a legal, exchange, and brokerage infrastructure which allows us to onboard many new customers. These customers were initially interested in foreign markets but later began participating in local offerings,” said the financier during The International Financial System in a New World conference, organized by the Freedom Holding in conjunction with the Reinventing Bretton-Woods Committee.
The creation of the Astana International Financial Centre (AIFC), a unique business zone with a favorable tax regime and English law as the ruling legal framework, has played a crucial role in this development. Companies registered with the AIFC can issue financial instruments (shares, bonds, notes, etc.) denominated in foreign currencies and offer these securities to a wide range of investors.
These assets are traded on the Astana International Exchange (AIX), which operates within the AIFC. The AIX has many Kazakhstani and foreign banks and brokerage companies as members and its shareholders include the Shanghai Stock Exchange, the Silk Road Fund and Nasdaq, which provides the trading platform for the AIX.
Timur Turlov believes that the financial center is one of the best places globally for issuing securities denominated in foreign currencies due to its low operational costs and favorable tax regime. Freedom Holding Corp. has also had a positive experience listing on the AIX. Last December, the company successfully placed five-year maturity bonds denominated in U.S. dollars to finance the development of its telecom operator. The funds raised were allocated for infrastructure development, primarily the construction of the 5G network. Once the new company is fully operational, it will significantly reduce client acquisition costs for the entire Freedom Holding Corp. ecosystem.
“We see that in Kazakhstan we can raise more than $300 million on KASE and AIX. This is quite a significant amount of money even for large international marketplaces. It was simply impossible five years ago,” Timur Turlov said during the conference.
This year, the company successfully placed its Exchange-Traded Notes (ETNs), linked to the share value of Freedom Holding Corp. These notes are used in the company’s loyalty program, allowing clients of Freedom Bank to receive cashback and benefit from the company’s stock value growth. Since the beginning of the year, Freedom’s share price has risen by 20%, while the market cap of the company reached the $6 billion mark.
Constituents of success
A combination of a favorable regulatory environment and advanced technology enables businesses to create cutting-edge products and services at the intersection of banking and investments, Timur Turlov highlighted. “Currently, we have the technical capability to offer securities to even hundred-dollar investors,” he said, pointing to the initial public offerings of KazMunayGas, the largest oil company in Kazakhstan, and Air Astana, the national carrier, as examples. During these IPOs, clients purchased the stocks using banking apps that they already use for everyday transactions. Freedom Finance was the key underwriter for both IPOs, placing the largest volume of stocks among retail investors.
Another positive aspect of Kazakhstan's financial landscape is its national regulation, which is based on the principle that the substance of a transaction prevails over its form, according to Timur Turlov. In this case, the regulator is indifferent to whether securities are issued physically, through a centralized database or with the help of blockchain. As long as the securities are officially registered, their status remains the same. This allows issuers to more easily adapt to technological advancements in the financial market, the financier noted.
Taking all these factors into account, Kazakhstan has the potential to become a regional hub for raising capital and exporting exchange and fintech solutions to neighboring countries, according to the CEO of Freedom Holding Corp.
