- Bolat Bidakhmetovich, recently there was an opinion that it is necessary to consider the possibility of transferring credit to the manufacturing industry at the expense of budget allocations to the combines on the basis of the following statistics: while lending to manufacturing enterprises, the share of DBK is 57% of the total, but it covers two dozen large projects. The bank is also offered to borrow funds for lending in the domestic and foreign markets - and do you see in the future some alternative to the budget funds involved?
"It is clear that the alternative to budget money is market money, but I want to remind you that at the expense of budget money today we are implementing the State Program of Industrial and Innovative Development for 2015-2019 (SPIID). And this money goes there not because DBK can not attract them from the market. Simply today, the money on the market is quite expensive to implement long-term large investment projects, and the government allocates budgetary funds in order, partly funding our operations, to make loans cheaper. When implementing the SPIID, it was assumed, to KZT 75 billion, which came from the National Fund, KZT 150 billion we had to attract from the market, and KZT 225 billion in total we had to finance investment projects - we did it. The program assumes that 167 billion for three years (for reference: KZT 155 billion from the Republican budget allocated to DBK in 2016-2017 in the form of a loan, KZT 12 billion is planned to be allocated this year), including the current year, will be allocated from the budget, we will have to attract the same amount from the market and implement investment projects in the manufacturing sector.
We are now in the implementation phase of this program. There are projects for which we work, and the Government order there determined that each tranche allocated from the budget should be developed within three years, taking into account the location and development of the project.
It is clear that the enterprise is not built for a year, two-three years is needed for the construction of the enterprise and for its financing. Therefore, we will use these budget funds within the time frame that is necessary, plus we will use the money that we need to attract from the market. And by the way, our recent access to foreign markets was due to the fact that the situation developed in such a way that we could take a cheaper price on the foreign market than on the domestic market.
Once again I will say: we have no problems with attracting money from the domestic market, the question is only in their price, and the price today in the money market is high enough to finance large investment projects. The maximum rate at which they pay off is 10-11%, and today we can only attract 15-year-old money from the market at this rate, but given the risk margin, it is clear that it will be more expensive for enterprises. The situation in Kazakhstan after the collapse of liquidity is now straightening out, but the cost is still high on the market for long money. And that's why we were placed on the foreign market, and so in KZT, of course, we are oriented to the domestic market with borrowing. And we believe that the cost of money will decline in the market, and along with the decrease in the value of money in the domestic market, there will be no need for funding from the budget.
- And for how long, according to your forecasts, will you have to wait for the decline in the cost of money in the domestic market to the optimum?
"The cost to the optimal one will decrease, probably for another two-three years, and if in the course of these two- three years the macroeconomic stability of our economy will also be ensured: there will be no external shocks that will require any adjustment at the rate, which again will affect the cost of money in the economy - that's our vision.
- Once this cost becomes optimal, and commercial banks will be able to finance long-term projects in the manufacturing sector, will DBK automatically step aside?
-Let's put it this way: the issue of non-competition of DBK with second-tier banks all the time in the field of view of the financial sector. But now the situation looks like this, that banks practically do not finance long-term big long loans. There are many reasons for this, but if the banks become more active in this direction, the shareholder can raise the minimum loan amount, that is, DBK will only work with the largest investment projects.
- And how in practice will the Development Bank determine its niche?
- Well, let's say now we are financing projects with loans from $ 20 million, this bar can be raised up to $ 30, 40, 50 million, then we will finance only the largest projects. Now the bar is $ 20 million, and the main problem is not even in the amount, the main problem is in terms: we have an average duration (average weighted maturity of the loan - Къ) of the portfolio - 14 years. In order to finance for 15-20 years, to issue loans for this period, it is necessary to have an appropriate funding base. This, in fact, is the main problem for second-tier banks for today.
- You mentioned recent foreign borrowings in April of this year, when DBK carried out the second issue of tenge denominated Eurobonds in the amount of KZT 100 bn. At the same time, your institution managed to increase the borrowing terms to 5 years from 3 years and reduce the coupon rate to 8.95% from 9.5% per annum compared to the debut placement in December 2017. How do you assess the results of this placement and whether DBK intends to use this tool yet - and to implement additional borrowing in international markets?
- I recall that the yield with tenge Eurobonds in December last year was the debut issue of tenge instruments on the global financial market, and the first public issue of them. Our bonds were in great demand, only 2% of the issue in the first and second cases were purchased by Kazakhstan investors, all the rest were foreign investors, primarily from the UK, the EU and the USA. And in the first case, we placed at 9.5% three-year, in the second case, the rate was 8.95%, yield - 9.25%, and these were already five-year papers.
If we talk about the results of this placement, then, firstly, it indicates a certain confidence in the tenge from international investors. Secondly, it also says that the financial state of us, as an issuer, fully satisfies investors. We are really a reliable borrower. And in this sense we, as issuers, are certainly interesting for investors, both external and internal, in particular, for the Unified Accumulative Pension Fund.
Are we going to go out with Eurobonds yet? Now no. We manage the debt profile, we have placed three- and five-year papers, now we need longer paper. These long loans we can only get on the domestic market. And in general this year we have no intentions to be placed, to attract additional tenge, as for the implementation of the development plan for the liquidity that we have, today is enough. There will be more projects, there will be a greater need for funding - we will be located. This year the new placement is not planned yet.
- Since we are talking about the UAPF: now the problem of low profitability of pension assets is one of the most discussed in Kazakhstan, and the issue of the possibility of their use in the implementation of certain projects in the country - in particular infrastructure ones - is increasingly raised. Are there any risks here?
- In fact, when it is said about the low activity of pension assets, it seems to me that this accent is not quite accurate. Pension savings should have that profitableness, which for borrowers of these pension money is acceptable. And if you declare high profitability, it is clear that when you raise money from the UAPF, you simply can not post them.
Here it is necessary to speak more likely that high inflation can depreciate pension savings, so the problem is not the low profitability of pension savings, but in a very, for many years, high inflationary background. Therefore, macroeconomic stability, reduction of inflation - this is the main direction of increasing the efficiency of investment of pension savings. Plus, the portfolio of pension savings should be diversified in order to reduce risks, diversified both in the country and in the country by issuers.
And yet: when you read articles about the fact that pension money is used for any purpose, I think this is an incorrect submission of information. After all, when you open a deposit, you do not say that you used money to put on a deposit - you put them there for safety and to receive an appropriate income. But if you open a deposit and do not talk about "using" your money, then why, when it comes to pension money, they say that they are used?
- And what, then, is the correct wording from your point of view?
- The placement of pension savings is the management of them in order to ensure their growth in order to receive profitability on them. And so you read the headlines and you think: "People still have the idea that their money, their pension savings for something used - and once they were used, it seems like they already are not there."
- Let's return to the question of DBK's need for borrowing: You said that the Bank currently does not need new tenge issues - but in currency?
- As for currency attracts, we do not finance projects in foreign currency, if they can not utilize currency risks. Thus, we naturally hedge currency risks and do not allow our customers to have such risks if they are not able to dispose of them. Therefore, our main demand is still in tenge.
At the same time, there are large export-oriented projects that can be financed in foreign currency. Here we have the opportunity to enter international equity markets for foreign currency loans, we have the opportunity to attract practically unrelated loans from state-owned banks in very good conditions. A corresponding memorandum was signed with us, in particular, with the state development bank of China. That is, we have the ability to quickly and effectively accommodate to attract foreign exchange. But we will or will not do it, depending on what projects will come to us.
- DBK, among other things, finances export operations - can you find out what are the problems and risks in this area?
- Yes, we support through export and pre-export financing of exporters. This is another direction that shareholders keep in view that the bank should occupy that niche that for some reason other Kazakh financial institutions can not now occupy.
Pre-export financing in tenge prevails, borrowers with export contracts come to us, and we finance them for these contracts, and now the government is discussing further measures to increase support for exporters, but, of course, the problem in the contracts themselves.
We often think that the Development Bank does not have the resources to procure export credit. In fact, this is not so. We, as a bank, have the resources and have the opportunity to redistribute them, since pre-export financing is a short operation, therefore, we always have money on it. There is always the opportunity to support new exporters, but there are certain difficulties with the new exporters. There is a shortage of borrowers who would have export contracts, not memorandums of intent, namely export contracts.
The first export deal for many enterprises is quite complicated, as they have to sign for obligations when they are not sure of the fulfillment of this contract. Plus, there are many conditions that need to be met in order to make this deal - there are a lot of restrictions for export, let's say agricultural products: there must be corresponding missions from veterinary and other services of the exporting countries to Kazakhstan to check the compliance of enterprises with the requirements, and this is the cost.
There are a lot of issues that need to be addressed to help exporters enter export contracts. Therefore, in fact, we see a certain deficit in demand here, unavailability for a number of reasons exporters come to us with a full-fledged export contract.
- How to resolve these difficulties?
- Complex decisions are needed here in order to remove the barriers that exist in exports. Any intention of any country to support its own production results in restrictions on exports to that country.
- With China, the government decides in complex: brings whole inspections to the enterprises of the agro-industrial complex ...
- Yes, but it is necessary that these inspections are visited by every enterprise that is going to export its products, and this is the work that also needs to be organized. The main task is to remove barriers that impede exports, plus support measures for subsidizing or financing the costs of inspections of enterprises, if we are talking about livestock or crop production and other measures that would allow our exporters to find buyers on the foreign market. That is, you need not just an understanding of where you can sell something, you need a partner on the other side, it requires a lot of effort from both the state and the enterprises themselves.
- Now one of the main trends in Kazakhstan is the digitalization of enterprises, it is obvious that such projects for costs and timing fall under the conditions that commercial banks are not able to provide - are there any similar projects in DBK's current portfolio?
- We are still a bank and the projects that we finance, these are the projects that clients come to us. But I will say that all new projects are projects that involve the informatization of the main business processes. There was a recent press tour to the Aktogay Ore Mining and Processing Industrial Complex KazMinerals, a large modern production facility - and there are almost no people there, since there absolutely no need for people in these mill complexes, on other sites - all this is managed from the control center.
The same can be said about the Aktyubinsk rail plant, and about AtyrauNefteMash - these are industries that require very high quality products. Even the project that we are currently financing in the Akmola region to build a poultry farm in Makinsk (where they are expected to start up, the first broiler chickens will appear at the end of September) is also a fully automated enterprise. Probably, it will be the most automated poultry complex to date, where feed production assumes a very accurate dosage of all components in feeds, and all other processes will also be made in the automation mode, rather than some kind of manual work.
Therefore, digitalization, informatization of all business processes is something that, as we see, is being implemented in our projects every day, and we are glad that we are participants in this process.
- Do you consider the existing mandate of the Development Bank to be exhaustive and fully relevant to the needs of the country's economy?
- Yes, we believe that today's mandate is fully consistent with the goals for which the bank was established 17 years ago. And we are not going to make any changes, especially since it was done two-three years ago. This applies to goals, this applies to tools.
Incidentally, we included in the mandate the possibility of implementing projects on the basis of project financing. We are doing this because it is clear that it is impossible to finance any large enterprise and demand that the borrower have an unencumbered, even larger asset that would cover the risks of the new enterprise. This is impossible, therefore we are engaged in project financing. At the same time, if in some projects there is not even a full amount of structural project financing, in this case there are some of its elements that assume securing future cash flows, accepting off-take, EPC contracts as collateral. That is, contracts that imply firm obligations of these contractors to bring this enterprise to the operational stage. Thus, the risks of project's non-commissioning are reduced, accordingly, conditions for future cash flows are created. That's why we created a special fund with another subsidiary of Baiterek, Kazyna equity Management, through which we can ensure the capitalization of those projects that lack equity.
- And who has already resorted to the help of this fund?
- Yes, we decided on one project, but now its shareholders are thinking whether to use this option or not. In general, there are now several projects in the work, and we will inform you when we will be provided with capitalization. That is, all the necessary decisions, all the necessary regulatory legal basis for this is created. And now we are managed by this fund "Kazyna Capital Management", they have several projects that should be implemented this year. That is, we have very clearly defined our goals. First of all, the government as the ultimate beneficiary, shareholder, has set goals for us. And for the instruments we have all the necessary set for their achievement.
Therefore, going back to the previous question, we are making all the necessary changes on the go, and the corporate governance system that exists, the level of authority and responsibility, the independence of the bank that is, the interaction that we have with the shareholder allows all tasks not to postpone for later, do not keep them in mind in order to realize ever. Therefore, we solve all the arising questions quickly enough.
There are always a lot of such questions, there are always new tasks, new problems, new risks to be reacted to, this is a process. If they depended on someone's will and waited for it to come to pass, I probably could have enumerated: "We would like that and expect something". No, we have quite a sufficient level of independence and autonomy, plus a well-structured system of relations directly with the shareholder - Baiterek, and with the ultimate shareholder, the government.