Kazakh Investor Group Asks Regulator to Probe Kcell Share Moves

(Bloomberg) -- A group that lobbies for minority shareholders in Kazakhstan asked the country’s financial regulator to investigate possible share manipulation during the sale of a state-owned stake in the mobile operator Kcell.

Kcell shares lost about half of their value between reports of a possible sale earlier this year and the deal in September, when state-owned Kazakhtelecom sold a stake to a group linked to Kazakhstan’s first president, Nursultan Nazarbayev. The benchmark KASE index rose about 14% over the same period.

The Qazaq Association of Minority Shareholders asked the watchdog to look at trades from Sept. 28-30 on the local stock exchange, according to a Dec. 23 letter sent to the Kazakhstan Agency for Regulation and Development of the Financial Market that the group also provided to Bloomberg. 

“The price of Kcell shares on KASE was higher than its fundamental value and even higher than Kazakhtelecom’s capitalization,” Kazakhtelecom and Kcell said in a joint comment. “During the period when the decision to sell a 24% stake was made, Kcell’s shares on the KASE approached their fundamental value” and a sale via open trading was seen as the “optimal decision,” according to the companies.  

A spokesperson for KASE said market oversight is confidential and the exchange reports any suspected unethical trading to the relevant authorities. The financial regulator and Jusan, which bought part of the stake, declined to comment. 

The concerns highlight risks that have kept foreign investors on the sidelines of the Kazakhstan Stock Exchange, despite the country being ranked on par with the U.K. in the World Bank’s minority shareholder protection index.

“We do not understand the need for an accelerated sale of a stake in Kcell at such a low cost,” Halyk Finance said in an unsigned research note on Oct. 27. “The sale price of Kcell shares in this transaction was 36% lower than our estimated target price.”

Jusan Bank, which is majority-owned by an investment fund set up by Nazarbayev, began considering a stake in the mobile operator to expand its online banking services since at least February, people with knowledge of the matter said at the time. Around then, Kcell announced a plan to delist from London, a process it completed in June, a week before its price decline accelerated.

Kazakhtelecom in September sold 9.1% in Kcell to Jusan and an additional 14.9% to Pioneer Technologies Sarl, while maintaining a 51% stake. 

The combined stake was sold for 55.2 billion tenge ($128 million), according to Bloomberg calculations, based on a sale price of 1,152 tenge per share reported by Halyk Finance.

Kcell shares rallied after the sale and were up 24% since Sept. 29 to 1,616.98 tenge at 3:50 p.m. in Almaty on Wednesday. 

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