Samruk-Kazyna limits forex transactions of its subsidiaries

Samruk-Kazyna National Wealth Fund of Kazakhstan has instructed its subsidiaries to abstain from making unnecessary foreign currency transactions, Tengrinews reports citing the head of the Fund Umirzak Shukeyev as saying at the press-briefing in the Central Communication Service's headquarters on February 20.

“To support the Kazakh national currency we have introduced a special corporate standard that prohibits all of our subsidiaries from making unnecessary foreign exchange transactions. Unless there is a specific business need for such a transaction they will have to justify it to us that they really need the foreign currency," he said.

Before this new adjustment of corporate policies "our corporate documents classified forex and exchange transactions of our subsidiaries as their corporate activities, and neither the National Bank nor Samruk-Kazyna Holding interfered with them before. We were only tracking them through the Treasury," Chairman Shukeyev said.

Kazakh finance experts Olzhas Khudaibergenov and Anuar Ushbayev also believe that reducing the reliance of state companies on foreign currency deposits is among the key steps that would help de-dollarize the Kazakh economy.

State-run companies accounted for about 50-70% of "excess" foreign currency demand in the period from October to December 2014, they said calling the government to restore the trust of the population in the tenge - the Kazakh national currency - by pressing the state companies to sell their dollars.

Excessive reliance on US dollars among the largest players of the Kazakh economy exerts a strong pressure on the tenge - Kazakhstan's national currency. It increases the amount of tenge circulating in the economy escalating the tenge devaluation risk and making it harder for the central bank to maintain the exchange rate.  

Samruk-Kazyna is a 100% state-owned sovereign wealth fund that owns, either in whole or in part, all the important companies in Kazakhstan, including the oil and gas national company KazMunayGas, uranium company KazAtomProm, air carrier Air Astana, national railway operator Kazakhstan Temir Zholy and the country's largest Internet provider KazakhTelecom. As of the end of June 2014, the Fund's group had 576 subsidiaries and associated companies. The total assets of Samruk-Kazyna amount to $100.5 billion. 

"We have analysed the foreign exchange operations they made since 2010 and found that about 40 percent of our companies have been keeping their deposits in foreign currency. This is due to their need to service their debts and execute investment projects," he explained.

He also claimed that Samruk Kazyna companies “actually supported the tenge exchange rate”. 

According to Umirzhak Shukeyev, as of March 1, 2014 the fund's group had $12.75 billion in their deposits, with 44% of the money ($5.68 billion) being in foreign currencies. As of December 1, 2014 the group's deposits made $10.72 billion with 41.5% ($4.44 billion) denominated in foreign currencies.

As a result of the control exerted by the holding in 2014 Samruk Kazyna companies acquired $5.7 billion and sold $9.2 billion in forex thus decreasing the amount of forex on their accounts, he said. "They bought much less then they sold," Shukeyev summed up.

"I would like to use this opportunity to dispel the rumours that the Fund's group has been exchanging all their money into foreign currencies, and spurring the devaluation expectations by doing so. The dynamics of our deposits makes the picture very clear. The Fund's deposits denominated in foreign currencies constitute only 7.3% of forex deposits in (Kazakhstan's) entire banking system," the Chairman said.

He promised that Samruk-Kazyna holding would revise the mandate forms of each of its companies with the National Bank to readjust the amounts of foreign currency that they can get to their actual needs.

"This way we will try to sell (foreign currency) and convert a part of our deposits back to the national currency. This will be done gradually, coordinatedly and step-by-step," he said.

Reporting by Altynai Zhumzhumina, writing by Dinara Urazova, editing by Tatyana Kuzmina