bne IntelliNews – AFC CAPITAL: The engine of capital market reform in Uzbekistan is purring loudly



While the general sentiment in the Uzbek stock market can be described as neutral over the past few months, its moderate weakness was likely due to sellers taking profits after significant rises in the market, although they did. in a light volume environment. This weighed on prices.

The pullbacks, however, are simply part of the ebbs and flows of a secular bull market and provide investors with the opportunity to accumulate stocks at recently reduced prices. In some recent cases, over 20% from their highs of just a few months ago. This correction is an opportunity to buy stocks at a good price, in anticipation of the next bull run, as earnings multiples compress, making them even cheaper.

To provide some numbers on how some blue chip stocks have progressed since the inception of the FCA Uzbekistan Fund on the 29thand March 2019, Uzbek Commodity Exchange (TSE: URTS) share price up 1340%, Biokimyo (TSE: BIOK) +400%, Uzmetkombinat (TSE: UZMK) +416%, Qizilqum Cement (TSE: QZSM) +178%, Quvasoy Cement (TSE: KSCM) +154% and Toshkent Vino (OTC-listed) +137%, excluding dividends, which in several cases generated an additional return of 15% to 20%.

Beyond muted activity in the stock market, under the “hood”, the engine of reform is purring loudly via the presidential decree to develop Uzbekistan’s capital markets, with 2022 shaping up to be a year exciting with many progressive developments.

January certainly did not disappoint as the year started with a “bang! in the form of a presidential resolution announced on 17and January outlining major positives on privatizations and tax news related to capital markets. Some of the most important highlights of the resolution include:

  • From 1st April until 31st December 2024, there will be no tax on dividends on shares held in personal accounts (local and foreign natural persons), while the tax on dividends for accounts held by non-resident legal persons will increase from 10 % to 5%, in accordance with local corporate dividend tax.
  • Interest income on corporate bonds will be exempt from tax for local and non-resident natural and legal persons.
  • From 1st July, a stamp duty of 0.3% will apply to all transactions on the Elsis Savdo OTC platform, aligning its fee structure with that of the Tashkent Stock Exchange (previously, the Elsis Savdo platform charged a duty 20% on the gross proceeds of a sale, regardless of whether a profit or loss was realized). In addition, when a share is downgraded on the OTC market, minority shareholders will be able to request a compulsory redemption of their shares at the market price.
  • Foreign stock brokers will now be able to operate as underwriters in Uzbekistan, with locally licensed brokers having at least UZS 500 million in equity (equivalent to approximately $46,200).
  • Local Uzbek entities will need to list locally before they can list abroad, or do both simultaneously.

These developments are long overdue and frankly, we would be skeptical of their eventual realization were it not for the outstanding team comprising Deputy Prime Minister and Minister of Economic Development and Poverty Alleviation Jamshid Kuchkarov, Finance Minister Timur Ishmetov, Deputy Finance Minister Odilbek Isakov and Director of Capital Market Development Department Sarvar Akhmedov, all of whom clearly understand what needs to be executed to bring Uzbekistan’s capital markets into the 21st Century so to speak.

In addition to the above, UzAvto Motors (the largest automobile manufacturer in Uzbekistan), UzAvto Motors Powertrain, O’zbekgeofizika (the state geological enterprise), O’ztemiryulkonteiner (a state operator of dry ports and container terminals) and Dori-Darmon (the largest pharmacy chain in Uzbekistan) have all been approved for IPO.

Four other companies have been approved for secondary market offerings, including Uzbekistan Post (the national post office), Universal Sugurta (an insurance company) and Alskom (the third-largest private insurer in Uzbekistan).

Unrelated to the presidential decree, but nevertheless very positive news, the 1st In January, Navoi Mining and Metallurgical Kombinat (NMMC) was officially split into three companies, following the presidential decree of 6and March 2020.

NMMC was spun off into a uranium business that will remain state-owned, a gold business that is expected to IPO locally and will be followed by a possible dual listing, and a third arm to manage “the infrastructure social”. NMMC also released operating results for fiscal year 2021 with profit of UZS 11.3 billion ($1.045 billion), an increase of 12.7% from 2020. Meanwhile, Almalyk Mining and Metallurgical Kombinat (Uzbekistan’s largest copper mine due to IPO this year) reported profits of UZS 5.32. trn ($492 million), marking a 36% increase over 2020.

The author is the CIO of AFC Uzbekistan Fund.

Disclosure: AFC Uzbekistan Fund holds positions in URTS, BIOK, UZMK, QZSM, KSCM and Toshkent Vino.

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