Often, projects in this area have low margins, lack of collateral and high capital intensity - which automatically classifies them as socially oriented, not of great interest to most financial institutions and second-tier banks. Therefore, to launch such infrastructure projects requires state support and “cheap, long” financing. In the DBK Talk rubric, Assem Shakenova, Senior Banker of the Department for Work with Clients says about how the national development institute supports the domestic transport and logistics complex.
The transport and logistics complex is especially important for Kazakhstan. How do you assess the development of this industry in our country?
You are right, a well-developed transport and logistics infrastructure is a key factor in the social and economic growth of any country, but especially Kazakhstan, given its vast territory with remote settlements and advantageous geographical location, on which the development of new transport routes in the region depends. In recent years, Kazakhstan has done much to improve the situation in the industry, for example by allocating funds to support the sector and implementing new infrastructure projects. But it doesn’t have to end there, because of the rapid technological progress and digitalization, tectonic changes are taking place here.
What trends today affect the development of transport infrastructure, logistics and communications in Kazakhstan?
In terms of technical trends the spheres of transport, logistics and communications, like other sectors of the economy, are following the path of digital transformation, IT solutions are being actively introduced, and the market for digital services is developing. The pace of technological development in the industry is very high, compared to what we have now with the period six years ago, practically everything has changed. For example, in 2014 we proudly announced that with the participation of the Development Bank of Kazakhstan Altel LLP (now Mobil Telecom-Service LLP) builds wireless networks of the fourth generation (4G), a couple of years have passed and already the upgrade to 5G is required.
In terms of investment trends, more infrastructure projects in the industry are being implemented through project finance and public-private partnerships (PPP) instruments. In DBK, by the way, the first PPP project was implemented as early as 2019 - financing an investment project to provide broadband internet access to rural communities across the country. The borrowers were SilkNetCom JSC and Kazakhtelecom JSC.
How many transport, logistics and communications projects are currently in DBK portfolio? Is there a fundamental difference between evaluating and structuring such projects from all others?
There is always a difference, not only for projects in different areas, but also for those within the same portfolio. This is probably due to the fact that all Bank projects are unique in their scale, scope and socio-economic, strategic importance.
Nevertheless, transport, logistics and communications projects have certain fundamental differences that require special support, as the development of this direction is mostly needed by the state rather than the business. The problem is that such projects are characterized by high capital intensity with rather low margins and no collateral. Consequently, for STB and most financial companies, they are risky and unprofitable, roughly speaking, they do not pay off in a year or two, here it goes for decades. Another feature is the strong social focus of such projects. Again, financing of such infrastructure projects requires “cheap” and “long” financing in tenge. Finally, don’t forget that transport, logistics and communication are the “hands and feet” of export-oriented enterprises, without which there can be no development of production infrastructure, manufacturing industry and increase of exports of “Made in KZ” products.
In contrast, for DBK, as the main development institution providing better funding in the national currency, such projects are part of the mandate. That is why we are trying to increase their number in our loan portfolio, and today we have 14 active projects in the transport, logistics and communications industry.
In particular such projects as acquisition of passenger cars and electric trains Wagon Service JSC, construction of Saryarka trunk gas pipeline AstanaGas KMG JSC, construction of transport and logistics center in Shymkent and modernization of TLC in Nur-Sultan Continental Logistics LLP, implementation of LTE/GSM/UMTS networks and provision of broadband access to rural settlements of the country and others.
How do you attract new borrowers, what special loan terms are offered to stimulate the development of the industry?
Taking into account the mission of DBK - to contribute to the sustainable development of the national economy through investment in the non-oil sector of the country, including through the structuring of major infrastructure and industrial projects, few financial institutions in the region can compete with us. At the same time, we do not set ourselves the goal of maximizing profits, always prioritize projects of social importance, have flexible requirements for potential applicants, adhere to a loyal collateral policy, and provide a wide range of tools. For the same reason, our projects, especially at their inception, are not attractive to STB. Therefore, our borrowers come to us purposefully, already knowing our terms.
With regard to stimulating the development of the transport and logistics complex, the Bank’s front-office team regularly negotiates with the line ministry a plan for the development of the industry in order to keep abreast of and take into account the needs of the country, including the social needs of the population. Then we look for investors or suitable sources of financing for the project.
Has your approach changed during the pandemic and quarantine?
Due to the coronavirus pandemic, our lives have changed dramatically, so that such global changes could not bypass our work and the Bank’s business processes as a whole. Nevertheless, thanks to the timely response from the top management and management of the Bank, we were able to quickly restructure and organize the financing of projects in online format, because we understood that we should not stop and delay the construction of projects, such as the Internet for rural settlements, which otherwise they could remain cut off from the outside world due to quarantine. We have completely switched to online meetings, even there are jokes that we can approve the project and not even see the borrower “live”.
At first glance, it seems that transport projects have suffered most from the negative effects of the pandemic, is that correct? How do your current borrowers survive the crisis?
I think every banker will say the same thing about their direction, because the economy as a whole has been hit hard by the pandemic. With regard to projects in the transport sector, this is definitely the case. You will recall that business activity has fallen to almost zero levels, there was no movement of goods and, as a consequence, revenues of transport companies have fallen sharply.
The bank, for its part, has carried out stress testing, we have drawn up a detailed plan of anti-crisis measures for each project, we have adjusted the most individual approach to each of our clients - all this has helped us and our borrowers to survive safely the first waves of the pandemic. There are currently no problematic projects in the transport and logistics portfolio, including the communications industry.
What are new projects/plans for 2021?
Currently we are working on another strategically important project aimed at creating an infrastructure for the development of a modern trading system that will ensure the saturation of the domestic market with quality products and provide food security for the population.
In 2021, we will continue to work actively to strengthen cooperation with the government, borrowers and partners so that in the foreseeable future every Kazakhstani home will have Internet and gas, and the country’s transport infrastructure will reach the level of developed countries.
