My name is Aidar Arifkhanov. I am the Chief Executive Officer of Baiterek National Managing Holding Joint-Stock Company - the financial operator of the Government of Kazakhstan. Today, during a live broadcast with you, I would like to tell you what work our Holding performs, what contribution it makes to the country's economy, and also will answer your questions.
Baiterek Holding was established seven years ago with the Decree of the First President of the Republic of Kazakhstan – Yelbasy Nursultan Nazarbayev. It was decided to combine various development institutions that were previously managed by the state bodies and their subordinate organizations. This was done in order to effectively manage and develop these institutions, significantly facilitate decision-making, and ensure that their support reaches clients promptly and effectively.
Today, the Holding has 11 subsidiaries that support large, medium and small businesses, Kazakhstani exporters, provide financial accessibility to housing for the population, create favorable environment for innovative companies, and develop the ecosystem of venture financing.
Today, all the institutions under our management have stable financial condition, single standards of corporate governance, risks and HR. Despite we obtained some of them from various government agencies with losses, weak management and without any clear strategy for the future.
Baiterek Holding is not only engaged in management. At our level, we structure projects in priority sectors of the economy to provide support measures on a “package” basis. This means that a single project can be supported by several of our subsidiaries in accordance with its SUBs. Such projects have been implemented and are being implemented in the chemical, food and metallurgical industries, as well as in mechanical engineering and electrical equipment. For example, this includes the delivery of locomotives of domestic production to Azerbaijan, the construction of Makinsk Poultry Farm, the construction of Saryarka Gas Pipeline, the construction of a plant for the production of sodium cyanide, and others.
I am particularly proud of my participation in financing the construction of Saryarka Main Gas Pipeline, which was completed and put into operation with our financial support. Almost three million Kazakhstanis will soon feel its benefits. In particular, in the city of Nur-Sultan, gas distribution networks are already being brought to residential buildings.
I would also like to add that one of the Holding's important priorities is to increase the share of non-state sources of borrowing in the overall borrowing structure, which should reach 80% by 2023. By attracting private funds and mixing them with budget funds, we can reach more projects of Kazakhstani businessmen with affordable support. I note that the ratio of attracting investments per 1 tenge of the Holding since 2013 has increased from 1.85 tenge to 3.12 tenge in 2019, or 1.7 times.
By many indicators, the Holding managed to achieve growth. According to the results of the audit, the assets of the Holding group in 2019 amounted to 5.2 trillion tenge, an increase of 10.5% for the year (assets at the end of 2018 – 4.7 trillion tenge), consolidated net profit for 2019 amounted to 51.5 billion tenge (for 2018 – 34.7 billion tenge).
Let me tell you about each area of our work separately.
Supporting large business. The flagship in this direction is our subsidiary organization - Development Bank of Kazakhstan. DBK provides financial support for major manufacturing projects that make a significant contribution to economic diversification. They provide the most replenishment to the budget and jobs. Today, the Bank's portfolio includes 55 investment projects and 15 export operations worth 6.3 trillion tenge. Last year, with the support of the DBK, eight projects worth 1.8 trillion tenge were put into operation, which created more than 1,700 new jobs. In particular, this is a power transformer production plant in Shymkent, a photovoltaic power plant in Turkestan region, Astana EXPO-2017 wind power plant launch complex, a solar power plant in Kapshagai, a ferrosilicon plant in Karaganda, Saryarka Gas Pipeline, and the modernization of Shymkent Oil Refinery, a complex for deep oil refining in Atyrau region.
An equally important area of DBK is preferential car loans. This allowed the population to purchase a car at an affordable price. At the same time, this is a significant support for domestic automakers, because preferential loans are issued for the purchase of cars of domestic assembly. These are 42 car models. The Program was launched on April 20, 2015. During this time, 20,629 loans were issued for a total amount of 98.2 billion tenge.
By the way, I want to note that a similar support program is also provided for agricultural producers. Earlier, we announced that the subsidiary of DBK - "DBK-Leasing", within the framework of the anti-crisis policy of the government of Kazakhstan, announced the launch of a special offer for the purchase of domestic agricultural machinery. Our company provides its services to farmers for the purchase of domestic agricultural machinery (combine harvesters and tractors) with the possibility of financing without a down payment. Whereas before, the down payment was a mandatory requirement.
Also, the nominal interest rate has been reduced from 7% to 6%. A grace period of at least 1 year is provided for the payment of the principal debt. The Program will increase by 30% the ability of farmers to update their fleet of equipment, which is outdated by 76 percent.
Currently, 9 projects in the amount of 62.2 million tenge have been financed and are under financing. At the same time, 22 more projects in the amount of more than 2.7 billion tenge are under consideration.
Support for small and medium-sized businesses. In 2019, the Government launched a lending program for priority projects "Economy of simple things", and approved the State Program "Business Roadmap 2025". In addition, a number of state programs that provide support for business development have been improved. Our Damu Entrepreneurship Development Fund is one of the main financial operators of state support measures under these programs.
In particular, the upper credit threshold has been increased and industry restrictions have been lifted under the BRM-2025 Program, the rate for entrepreneurs has been unified at 6%, and projects of large businesses in certain industries have been included. Under the "Economy of simple things" Program, the total funding of the program has been increased to 1 trillion tenge, the list of priority goods has been expanded, and so on. Thanks to these changes, during the state of emergency, Baiterek Holding successfully performed and continues to perform the role of an effective anti-crisis tool.
It is worth noting that the most popular tools for supporting the Damu Fund are subsidizing the remuneration rate and guaranteeing it. That is, Damu is committed to repaying part of the interest on loans to entrepreneurs, and also acts as a guarantor for businessmen when they receive a loan from a bank. Thus, thanks to Damu Fund, entrepreneurs can get 100% cheaper credit from banks.
According to the results of five months of this year, within the framework of the "Business Roadmap-2025" Program, Damu Fund supported 822 projects for a total amount of loans of 50.4 billion tenge through subsidizing the remuneration rate. Through the guarantee tool, contracts were signed for 468 projects for a total of 20.9 billion tenge of loans, the guarantee amount was 7.2 billion tenge.
In 2019, the Fund supported 24.3 thousand projects worth over 600 billion tenge. This is about 22% of the total number of people who received loans from second-tier banks.
The next direction is to increase export potential. In this direction, the Holding also operates a specialized institute - Export Insurance Company "KazakhExport", which has 14 tools to support domestic exporters.
During the period of work as a part of Baiterek Holding, KazakhExport has turned from a small company into a full-fledged national company. Thanks to the capitalization of 90.9 billion tenge, KazakhExport has increased its insurance capacity. In addition, in December 2019, the Government provided a state guarantee in the amount of 102 billion tenge for 10 years on the obligations of KazakhExport.
Since the beginning of this year, KazakhExport has supported 46 Kazakhstani exporters, of which more than 20 companies received support for more than 7 billion tenge during the state of emergency. The volume of obligations assumed by the company since the beginning of the year amounted to 23 billion tenge, the amount of supported contracts for Q1 2020 exceeded 90.5 billion tenge.
This year, for the first time, such companies as Fidelis Global LLP, which specializes in the production and sale of pipes and fittings, and Novus Polymer LLP, the largest company for plastic extrusion and foundry pressing, used KazakhExport support tools. They were provided with insurance coverage for the financing bank as part of the Loan Insurance tool.
Among the supported projects are food producers. For the first time, the tools of our subsidiary were used by CG FOOD Central Asia LLP. It is part of a Large International Corporation CG Corp Global LLP, which consists of 122 companies and has 76 representative offices in different countries.
The total number of supported exporters since 2017, i.e. since the reorganization, is 113 domestic companies.
DBK also provides support to domestic exporters. According to the results of last year, the volume of export revenue of supported DBK projects amounted to 1,126 billion tenge, or 19% of the total non-primary exports of 2019. In April-May of this year, DBK supported six enterprises in the amount of 25.4 billion tenge. These are Molproduct, Bayan-Sulu, Shymkentmay, Kazzinc, RG Brands Kazakhstan and Kazphosphate.
Provision of housing affordability. This is a very important area of our work. The Holding is a single operator of housing construction programs in Kazakhstan. We conduct our work through our subsidiaries.
House Construction Savings Bank of Kazakhstan - today, indeed, we can call as people's bank, which implements a system of housing construction savings. House Construction Savings Bank of Kazakhstan ranks first in long-term tenge deposits of the population in the amount of 806 billion tenge. At the end of 2019, about 61% of mortgage loans or 527 billion tenge were issued by our bank. Therefore, it is symbolic that an important social initiative of the First President of Kazakhstan – Yelbasy Nursultan Nazarbayev – the Program "Bakytty Otbasy" is implemented through House Construction Savings Bank of Kazakhstan.
This is a unique opportunity for large families, families with or raising disabled children, single-parent families with children to get housing at affordable conditions. Last year, 50 billion tenge was allocated for the implementation of this program, which was successfully mastered. About five thousand preferential loans were issued. This year, as of June 1, 2,346 applications for 23 billion tenge were approved. In general, in 2020, on behalf of the Head of State Kassym-Zhomart Tokayev, we plan to issue at least 10 thousand loans worth 100 billion tenge.
Kazakhstan Mortgage Company encourages the development of the mortgage market through the purchase of mortgage loans from second-tier banks. Since the beginning of its activity, KMC has repurchased more than 66 thousand mortgage loans worth 244 billion tenge. Since the beginning of this year, mortgage loans have been issued under its own programs in the amount of 4.2 billion tenge.
Baiterek Development finances the construction of credit housing through the mechanism of redemption of bonds of local executive bodies on the "revolver" principle. Those funds coming from the repayment of the loan, we direct to the construction of new housing. In 2019, securities of Akimats were purchased for 108.8 billion tenge. The plan for this year is 101.2 billion tenge, more than half of them have already been mastered.
In addition, in April this year, the National Bank of Kazakhstan allocated 180 billion tenge for the purchase of bonds of Akimats. The bonds were purchased in full. These funds will be used to build more than 15.3 thousand apartments in all regions of the country. All Akimats have begun the development of these assets in the month of April.
In addition, we have a Housing Guarantee Fund that supports shared-equity construction. In 2019, the Fund issued guarantees to 23 projects of private developers in the amount of 88.8 billion tenge. This year, we have guaranteed 15 projects worth 58.8 billion tenge.
It is worth noting that Damu Fund also has a share in housing construction. To reduce the cost of commercial loans, our Fund subsidized projects of private developers for 104.3 billion tenge.
I would like to note that this year we are completing the reorganization of the Holding's housing unit. At the instruction of the Head of State, Kassym-Jomart Tokayev, we are working to create a Single Operator in the field of housing programs by combining three subsidiaries - Baiterek Development, Kazakhstan Mortgage Company and the Housing Guarantee Fund- on the model of the Singapore Housing and Development Board. The relevant Law has already been signed by the President. Optimization of the Holding's housing unit will reduce general administrative expenses by more than 30%.
The Single Operator will work exclusively with private developers and Akimats on the construction of affordable housing through such tools as purchasing bonds of Akimats, providing guarantees for the completion of shared construction, subsidizing commercial loans to private developers, financing and implementing investment projects, and many other tools.
In addition, at the instruction of the Head of State, by the end of this year, a full-fledged development and support institution, Otbasy Bank, will be created on the basis of the Housing Construction Savings Bank, which will centrally carry out accounting, setting up and distribution of housing.
To implement this task, it is planned to transfer the existing system of priority from the Akimats to Otbasy Bank, which will work on the principle of "one contact" for families without housing.
It is planned to provide full access of Housing Construction Savings Bank to the state databases of individuals. A Housing Center will be created and an accessibility ladder will be actively introduced. In order to implement the above measures, amendments to the legislation will be required.
Thus, on the basis of the Baiterek Holding, a closed and simple cycle will be created to provide the population with affordable housing:
- Single Operator will provide affordable housing offer through construction financing;
- Otbasy Bank will stimulate demand from working citizens through preferential housing loans.
And another strategic direction of our activity is the development of venture financing in the country. Venture financing is an investment in small but promising start-up companies at the initial stage of their development. But unlike classic investments, the risk of losing investments is extremely great - even if 80% of the projects do not bring returns, then the profit from the remaining successful investments will pay off the rest.
In 2019, we completed the reorganization of our subsidiary, the National Agency for Technological Development. It is now called QazTech Ventures. Now it is a self-sufficient organization, a Venture Fund of funds for financing and managing innovative projects. This model is successfully applied in many developed countries. We have optimized the number of employees twice and cleared the company's problematic portfolio.
Over the past year, QazTech Ventures has reached profitability for the first time and over the last half of the year it was able to attract two leading venture funds from the United States "500 Startups" and Singapore "Quest Ventures" for joint investment with further financing in Kazakhstani startups. We have already entered the "Quest Ventures Asia Fund II" and V Global Fund with a capitalization of 50 million and 150 million USD, respectively. Kazakhstani youth developers with the support of QazTech Ventures now have the opportunity to enter foreign markets with their startup projects. And today we are searching for such startups.
In total, the socio-economic effect of the Holding for 2019 is as follows. Thanks to the measures implemented through Baiterek Holding, more than eight thousand new jobs were created, enterprises that received support paid more than 300 billion tenge in taxes to the budget, they also produced products worth 2.5 trillion tenge and sold products for export for half a trillion tenge.
Thank you for your attention!
Now I propose moving on to questions and answers. First, I want to answer the questions that were received in advance, to the email and phone number that we specified in the announcement.