Management of JSC NC “KazMunayGas” and Samruk-Kazyna Holds Explanatory Meetings with the Expert Community
At the initiative of Samruk-Kazyna JSC and JSC NC “KazMunayGas” (KMG, Company), meetings with experts in the financial and oil and gas markets were held in Nur-Sultan and Almaty on 6 and 8 September 2022 to discuss KMG’s operating and financial performance, IPO plans and other relevant issues.
The experts were presented with the Company’s key results for the first half of this year and given the relevant explanations during the meeting. Free cash flow was KZT 188 billion ($417 million), down 35% versus the same period last year. However, if we exclude cash flows from KazTransGas JSC (NC QazaqGaz JSC) divested in November 2021, we see an 81% increase in free cash flow (up 71% in US dollars) versus H1 2021, rather than a decrease. Capital expenditures excluding KazTransGas JSC, calculated on a cash basis, increased by 35% to about KZT 166 billion ($370 million).
The participants also discussed approaches to the dividend policy. According to international practices, the basis for dividend payments is usually free cash flow, as this indicator objectively reflects actual cash inflows, as opposed to net income, which includes non-cash items due to specific accounting policies. In case of KMG, however, the ability to pay dividends is affected by the size of its debt and the scope of investment, which are generally greater than those of peers, its social commitments, financial strength and others.
During the discussion of dividends to be paid by KazTransOil JSC, the experts were explained that the decrease in cash flows, which are the basis for dividend payments, was mainly due to the decrease in transportation through the Atyrau–Samara oil pipeline due to the growing competition from alternative transportation routes (those outside the company’s operations), increase in OPEX and CAPEX, including payroll, etc. However, KazTransOil remains a strategic asset for KMG, and a buyback or delisting of the company’s shares is not an option.
The Company’s representatives also spoke about the main stages of preparation for IPO from obtaining the necessary approvals and changing the Eurobond covenant package to the liquidation of sub-holdings and immediate preparation for listing on stock exchanges. Key value drivers were mentioned during the meeting such as production growth at the major Tengiz and Kashagan Projects and associated increase in transportation through the Caspian Pipeline Consortium (CPC), the possibility of increasing reserves through exploration, development of high value-added petrochemical projects and others.
Key risk factors noted are the oil price, dependence of dividends on free cash flow, production risks and others. The experts also touched on the oil transportation through the CPC system. According to KMG, single-point mooring (SPM) 3 at CPC is running smoothly and generally meets shippers’ needs for oil transportation at the moment. Nevertheless, the development and management of transport routes, including alternative routes, is one of KMG’s priorities and is under constant scrutiny.
The most relevant list of risk factors will be given in the prospectus. However, the current Eurobond prospectuses also contain relevant information.
To conclude the discussion, participants touched on the mechanisms to protect minority shareholders’ rights and investment guidelines that retail investors should adhere to.
The shareholders’ rights under applicable RoK laws, the Company’s Charter, the commitment to high corporate governance standards(KMG has a corporate governance rating of BBB from PWC), and the role of non-executive directors are noted as protection mechanisms.
In terms of investment guidelines, the participants agreed that individuals should consider all possible risks and potential benefits when making a decision, not to purchase shares with borrowed funds, to build a diversified portfolio, to consider their financial situation and risk tolerance and more.
In conclusion, it was noted that detailed information on KMG’s performance could be found at www.kmg.kz in the Investors section, including, among other things, quarterly consolidated financial statements, operational performance, annual reports and other information.