Online-conference with the Chairman of the Management Board of JSC Development Bank of Kazakhstan Gali Iskaliev

BNews.kz note: Joint Stock Company Development Bank of Kazakhstan was created in 2001 according to the Law of Republic of Kazakhstan “About Development Bank of Kazakhstan” on the basis of Kazakhstan President’s edict dated 28 December, 2000 #531. The sole shareholder of the Bank is JSC FNW “Samruk-Kazyna”.

DBK finances medium and long term investment projects in industrial infrastructure and not primary branches of economy. The main aims of DBK’s activity are the improvement and increase of the efficiency of state investment activity, the development of industrial infrastructure and processing industry, assistance in the attraction of external and internal investments to the country’s economy.

Presenter: Good day, today we are in studio of business portal Bnews.kz, where in a few minutes regular Internet-conference – Dialogue Online with the Chairman of the Management Board of JSC Development Bank of Kazakhstan Gali Iskaliev about investment possibilities of DBK for Kazakhstan business will begin.
I remind that in the nearest two hours you can answer any interesting for you questions to the head of Development Bank of the Republic. Gali Nazhmedenovich kindly agreed to answer to numerous questions of our internet- audience at BNews.kz portal today. So, Gali Iskaliev is in Bnews.kz studio now and he is ready to answer to your questions online, dear participants of the conference.

Question: What is expected volume of financing in 2010?
G. Iskaliev: Volume of financing depends on the quantity of coming projects. There are minimal volumes. They are approximately 1.5 billion USD, which we have to grant in the next year. We have necessary resources for this, but now Development Bank is practically one of few banks, which has monetary funds for the financing of major projects. We have already gotten a lot of projects and except to get. I consider that the amount of financing will be from 1,5 billion to 3 billion, in these limits.

Question: The financing of which projects do you plan to increase in 2010?
G. Iskaliev: We can’t practically say about projects, which we plan to finance, because there is obligatory procedure. That is project has to be confirmed by our all credit committees, management. But I can say that projects, which are considered by us… Nowadays we will consider the projects of sulphuric-acid plant construction, carriage construction, the reconstruction of Atyrau oil refining plant. We will receive reconstruction project of Shymkent oil refining plant, we consider the reconstruction project of ironworks in Aktobe city. That is these are great projects and they aren’t only regional ones, but all the projects are projects of republican significance, which are considered by us. And all of them are coordinated with government. I think that decision is made. Before the end of the year or in the first quarter of the next year, that is they are already technically, legally, economically proved.

Question: Which the most important projects are financed as of today by Development Bank?
G. Iskaliev: I have already told about Moynakskay HES, gas turbine stations in Uralsk and Kyzylorda region, as well as mountain-ski resort Chymbulak, Atyrau ferroalloy plant. We don’t conceal that only in the beginning of the next year we willl put into operation two cement plants, one in East Kazakhstan, another in Zhambyl region. They say that there are a lot of cement plants, but this is the first, which operates by dry method. We finance textile cluster, practically all investments are directed to textile by Development Bank of our subsidiary DBK Leasing. The same is in “Ontustik”, in March-April we will open new production, exactly textile products, and judging by the quality, it will be possible to speak about textile, which will be used for the production of the most expensive shirts, brand suits.
Unfortunately, meanwhile all products are sold in foreign markets. Taking into account that market isn’t large, they are interested in export in bulk. In the terms of crisis, they reconsider own policy, but when Ministry of Industry and Trade considered, why they purchase textile in China or Pakistan, there are some system problems, which have to be solved. Even requirements will for the products are changed. Requirements for certificate are changed and Kazakhstan content is increased. The decision have to be made and after that our products will be in need in internal market.

Question: I have unique invention “Pitmanless converting device” in the field of machinery. Its usage can contribute to beachhead in world automotive industry. The technical characteristics of new engine exceeds technical characteristics of modern engines. Today I need monetary funds for the device test, the production of commercial product. I have preliminary patent for the invention. This project promises great profit for Kazakhstan economy, not only for machinery sector. Is it possible to know about the terms of DBK credits, interest rates, credit durations and requirements for pledge?
G. Iskaliev: We have requirements for projects and one of them is technological approvement, that is real realization of the technology, we are going to finance. That is, unfortunately, exactly this project probably can’t be financed by us, it is the deal of venture funds or innovation fund. We don’t consider projects without practical realization of technology. I can recommend professor to apply Innovation fund, which is financd by several private investors, and if the project is valid and interesting, I consider that venture funds will respond soon.

Question: As we know, recently DBK capitalization to the amount of 1 billion USD for the purpose of projects realization for the industrialization of economy took place. Is there any plan of this industrialization, where, to which definite objects will this great amount be invested?
G. Iskaliev: Registered capital of DBK was increased to the amount of 1.1 billion USD and as of today DBK is one of the most capitalized banks of Kazakhstan. These resources will be invested to the financing of strategic objects in Kazakhstan. Nowadays we finance mountain-ski resourt Chymbulak, and the second project is Taraz ferroalloy plant. That is, if the first project is understandable, it is necessary for Asiada, it is infrastructure project, which will correspond to the highest modern standards of mountain-ski busines, and it will attract internal and foreign tourists, but the second project is major plant, which produces products, which 100% are exported abroad, i. e. it gives great currency earnings. But all major projects, which are financed from these funds, get through the agreement for economy modernization of state committee under the government of the country. I. e. we understand the responsibility. That is why it is necessary to coordinate all these projects, and only after their approval, we consider the possibility of financing.

Question: Which industrial objects were put into operation in 2009 in Kazakhstan with direct participation of your Bank?
G. Iskaliev: In this year, 4 new objects, which were invested by Development Bank of Kazakhstan, were started. The first project is plant in Aktau city, which produces metal-rolling products, and, as far as I remember, this project was opened during teleconference bridge on 6 July. This project, which exports the major part of products abroad, this is Turkey and Iran. That is using scrap iron, they produce plenty good enough products, armature, channels. Overall production reaches 160 thousand ton of rolled metal products yearly and there are perspectives of expansion up to 300 thousand ton annually.
The second project is fish processing plant in Almaty region. It is also the first such project, which will provide necessary food projects not only for Almaty region, but for neighbour regions and even plans to export abroad.
The third project is, literally, recently put into operation industrial complex for the production of drinks, juices, tea in Almaty region. This is the project of “Resmi-group”, its products are well known. They are juices “Gracia”, “Da-Da”, “Pepsi”. This project was interesting for us not only as products producer. It is realized as the part of the execution of regional program of the output of production capacity from Almaty city outside the city limits. That is unloading of city from production capacity, and this company built new plant, up-to-date, well designed in Almaty region and plans to increase own production capacity twice. This project has such factors, which are emphasized by the Head of the State, such is energy saving. Energy saving increased 1.5 times and productivity of labour after startup phase increased twice.
One more innovative project is situated in Astana city, this is company, which produces rubber crumb. This project, which recycles worned-out tyres, which soil environment, to support ecology and export it to Germany.
Before the end of the year we plan to open, exactly, modernize one more object. This is polygraphic plant in Astana city, which produces colour and black-and-white paper. In such a manner, we are going to put into operation 5 objects.

Question: How many investment projects from 195 ones, which are approved by DBK as of 01.05.2008 are finished and began to profit to our state? How many projects are in the developmental stage?
G. Iskaliev: As of today 50 object in virtue of the part of DBK’s investment have been put into operation in the territory of Kazakhstan. All of them exist, indeed. I can’t say that all of them work successfully in the terms of general economic recession, but 50 objects have been put into operation and benefit to our state. Other 22 investment projects are in the financing state.

Question: Good day, Gali Nazhmedenovich, what work is done by DBK to optimize financing process (do you have proposals for efficiency increase …)? What is minimal (not theoretic, but real) term of credit request consideration? And what are the problems, You as, chief, what problems do you see in the management of DBK? Sincerelly yours, the participant of “Youth personnel reserve” project, Kamshat Mansarbayeva.
G. Iskaliev: The term of consideration of requests is 20 working days in practice isn’t executed. There are cause for this. They are from clients and banks. From clients are the quality of projects and managers, who prove them for the bank. You analyze, you understand that average cost of projects is approximately 30 million USD. It is necessary to understand that these are sufficiently complicated projects …. 70 percent of our projects. It is very important to execute careful expertise. Sometimes, project or marketing projects endanger whole project. It is necessary to calculate all possible deviations, risks.
I don’t conceal that there are problems inside the bank. From June of the present year new executive body is created. It is board of management, which enables to make decisions faster. That is if before we had to wait when the board of directors will take place, but now board of management has right to make decisions independently for projects with cost less than 50 million USD and it can work even everyday. The second is the improvement of responsibility. They already work promptly and defendantly for the question. For the first time Board of directors trusted to Board of manafement to make decisions concerning credits. Concerning purchases at the cost of our loan, we have increased requirements for the projects and now we have limited the participance of DBK in one of projects maximally up to 80 percent. Formerly we hadn’t such limits. We realized required improvements. But I can say with confidence that there are projects, which can’t be approved in 2 months, and decision concerning them hasn’t made duting a year. All this depends on the quality of project and managers from the both parties. If project is promtly, soundly presented and proved, appealed, so we promptly make decision.

Question: How many requests for financing were received in this year and what percent of them was approved?
G. Iskaliev: In this year we have received 65 requests. All of them have different quality, indeed. There are incomplete requests, without necessary package of documents. There well developed projects. In this year we have approved only two projects. These are I have already mentioned, two gas turbine stations. The selection is rather strict, but not only because we have very strict requirement to projects. достаточно, но не только потому, что у нас жесткие требования к проектам. the case is that in terms, when financial crisis began, in October of the last year, capital markets were closed. For us, development banks too. In practice before June of this year there weren’t any funds for projects approvement in Development bank. From 1 August we have signed agreement with Chinese bank, that is now we have enhanced our work for other loans attraction, that is activivity was began only in the second half year. That is why there is such a low volume of approved projects.

Question: As we know, recently DBK capitalization to the amount of 1 billion USD for the purpose of projects realization for the industrialization of economy took place. Is there any plan of this industrialization, where, to which definite objects will this great amount be invested?
G. Iskaliev: As of today DBK is one of the most capitalized banks of Kazakhstan. These resources will be invested to the financing of strategic objects in Kazakhstan. Nowadays we finance mountain-ski resourt Chymbulak, and the second project is Taraz ferroalloy plant. The first project is major infrastructure project, which will correspond to the highest modern standards of mountain-ski busines, and it will attract internal and foreign tourists. The second project is major plant, which produces products, which hudred percent are exported abroad. All major projects, which are financed from these funds, get through the agreement of state committee. We understand the responsibility.

Question: Is it planned to finance MSB in alternative todays terms? Where can we get financial support without pledges?
G. Iskaliev: Unfortunately, we don’t finance MSB, because we have minimal requirements – this is 5 million USD. We have subsidiary DBK-Leasing, which finances projects from 1 million USD, that is, I consider everything, which is concerned with production, so they can appeal to our subsidiary DBK-Leasing. Its financing is cheaper than in commercial banks, that is why it can support them. But it is impossible to consider any project without pledges, these are our terms. The advantages of leasing is that purchased equipment is pledge. According to leasing terms it is necessary to process prepayment by client, 15-20 percent of the cost of equipment. But the equipment is pledge.

Question: DBK’s activity is often criticized. Often it is unfounded. As really it is incomprehensible, what is effect of granted by bank state investments during all years of its existence from the date of its foundation. People has never understood the purpose of our financial institute, if there is opened plants, industrial companies in real sectors. You, as present chief of DBK, can answer to this question to explain everything concerning the role of DBK in the development of Kazakhstan economy?
G. Iskaliev: Start with we are completely support critics, if it is constructive and valid. That critics, which is in mass media now, I consider that it isn’t constructive, it’s their decision to increase popularity in such a manner. But I agree that final effect isn’t visible. Now we work for the improvement of transparence of our activity, the information awareness of development bank.
Bank clients can answer any questions to the management of the bank, and it wiil answer to all questions. Concerning effect I am interested in the question too. Because there is no any criteria of efficiency estimation of development banks. Every state has own. But in general, general standards is the providing of income of bank activity, and the second is the quantity of realized projects. But it is difficult to calculate which effect is given to state. Conditionally, we can name our infrastructure projects. For example, project, which is put into operation by our President – this is high voltage power line “North-South” of KEGOC company, which enables to provide up to 600 Megawatt of electric energy to south region, which is in short supply. I don’t know how to calculate it in numbers. We have an object in Mangystau region, which is realized by “Kazgasaymak” company. Reserve gas pipe line was built in virtue of our investmens. There is a gas pipe line in 50-s in Soviet Union and it is great risk, because if it breaks down MAEK and the major part of Mangystau region will be stayed without gas, water and electric energy. The construction of this gas pipe line will solve this problem. How the effect can be calculated? In general, if we say about 50 projects, more than 15 thousand people work at the projects. Probably, this number isn’t great for such volume of investments, but we should emphasize that all the projects are based on modern technologies, equipment, where productivity of labour and assets is at the first place. We aren’t oriented at the social side of these projects. The more working places we create, it is better for us. Unfortunately, it is incorrect. Our projects have to be competitive.

Question: Please, tell us about post-crisis period. Which of them are high priority? What are the consequences of crisis for Kazakhstan economy?
G. Iskaliev: Consequences for us, probably, are obvious. Our clients and companies, which plan to be our clients, they have fresh approach for projects, which are planned to be realized in the terms of limited market, as capital, as consumption. Requirements for the quality and profitability of these projects will be increased. Positive, which was brought by crisis to economics is the decrease of price for equipment and services, which are financed in the terms of projects realization. Nowadays it is necessary to use this, bank should invest to infrastructure actively, because it should be ready for post-crisis period.

Question: How often do you have to deal with default on obligations by loan debtors?
G. Iskaliev: Yes, we have 72 projects in investment portfolio and we work with 2-3 projects legally. It is the collecting of pledges, going to the law, law machinery, but major part of problem projects aren’t major projects and are related to grain, flour. The second problem of commercial banks is so called GEP liquidity, when monetary funds are given in one format, but are returned in another one, that is they are attracted for one year, but credits are granted for five years, or are obtained in one currency, but returned in another. GEP liquidity is practically at zero-low level in our banks. We grant practically all, we have ourselves.

Question: Please, tell us about international cooperation of your bank? With which countries does DBK work for investment attraction?
G. Iskaliev: For us international cooperation except for participance in international forums, conferences, is emphasized on one question – the attraction of investments, external loans for DBK. There is an opinion that DBK operates with budget funds completely, but, really it isn’t so. Funds, which are received from budget or shareholders, or directly form the Ministry of finances to our portfolio reach approximately 22 %. That is 78% of funds, which we have now – these are money, which are attracted from abroad, or from internal market. If we say about foreign investments, they are coming from such countries as Germany, the Great Britain, Switzerland, Japan, the Netherlands. In 2008 even in the terms of crisis we could attract some resources from these countries. In this yeae we have also signed particular agreement, you know, I’m about money from State Development Bank of China to the amount of 400 million USD, signed agreement with Eximbank of China to the amount of 5 billion USD. Here we execute of agreement, which are reached by our President with China.

Question: How DBK supposes to manage credit to the amount of 10,2 million euro in the terms of credit line “BNP Paribas” » to the amount of 200 million euro in the terms of agreement, signed at recent Kazakhstan-France forum?
G. Iskaliev: In the terms of visit of the President of France Sarkozy we signed credit agreement with “BNP Paribas Bank” to the amount of more than 10 million euro and before the end of November we will sign several contracts with JPKL of Japan and American bank “City”. That is to recover confidence to bank sector, and particularly maximally use own ratings and image to attract more foreign investments. According to credit line of “BNP Paribas” bank we are going to finance gas turbine station in Kyzylorda region before the end of the year.