HR 217: Letter to the Chair from Mukhtar Ablyazov
The UK position on Kazakhstan
I recently wrote to you, drawing your attention to then new evidence of corruption in the sale of Kazakhstan oil and gas assets to Chinese investors. This evidence has now been filed with the Kazakhstan authorities, including the Parliament, the Attorney-General, the Chairman of the National Security Committee, the Chairman of the Agency of Kazakhstan for Fighting Economic Crimes and Corruption.
The Agency for Fighting Economic and Corruption Crimes in Kazakhstan has announced that it has started a criminal investigation into these deals.
Further material has now come to my attention, which I have again made publicly available and sent to the Kazakhstan authorities. In my view this evidence is so overwhelming that the only conclusion an independent authority can reach is that Timur Kulibayev and members of his organized crime groups have been involved in the theft of state property on a large scale, abuse of authority by persons authorised to perform state functions and laundering of illegally obtained money.
More worryingly for concerned international observers, I am now aware that companies have been listed on the UK Stock Exchange which should undoubtedly be the subject of investigation by the Kazakh authorities and if they are found to be guilty of corrupt practices, this could directly impact on UK investors.
The clear evidence of widespread corruption condoned at the highest level adds to concern about the clear lack of progress in the many commitments made prior to Kazakhstan's Chairmanship of the OSCE this year, as evidence of human rights abuse, lack of independence in the judicial system and media suppression continues to gather.
Whilst I understand that the British government may be raising human rights and press freedom issues with Kazakhstan officials in private meetings, the public position still appears to be overly supportive of the existing regime. Such support appears to be tantamount to collusion with a corrupt regime and I ask you to more publicly register your concerns.
Clearly this year is crucial for President Nazarbayev given his 70th Birthday and the country's Chairmanship of the OSCE. Therefore I believe that Kazakhstan will be receptive to comment from the international community during 2010 and the UK should be seen to champion the need for an independent judiciary, real improvements in its human rights position and a full and open investigation into the allegations of corruption. I believe it is essential that the UK government should NOT support his call for a Summit to be held in Astana during his Presidency.
I attach brief details of the actions of Mr Kulibayev and would be delighted to provide more material if required. The documentary evidence for all my statements is posted on the internet and the links have been published through Respublika, the opposition newspaper in Kazakhstan that is fighting for its survival.
Naturally I would be pleased to meet you to discuss this situation at any time.
9 March 2010
The description below of a small selection of the deals involved, which are fully documented with now publicly available material, illustrates the corruption in Kazakhstan has become an international contagion with potentially severe consequences. It is essential that the UK recognised this reality.
Restructuring of KazMunaiGas
In December 2003 the Board of Directors of KazMunaiGas agreed a restructuring programme, to dispose of assets listed as 'unfavourable'. At the time, Mr Kulibayev was first Vice President of KMG and Aidan Karibzhanov was managing director of economics and finance at the company, driving the process of assessment re which assets to include in the restructuring.
Mr Karibzhanov also owns a major stake in Visor Capital, which now operates in London under FSA regulation.
KazStroyServlce was one of the companies identified as 'unfavourable' and disposed of in February 2005. It was sold to Mercury, a company owned by Timur Kulibayev, for just $9.3 million. Credit Suisse confirmed that the private equity investment was done at a valuation of $1 billion. This disposal of state assets to an individual at less than 1% of market value clearly represents theft on a grand scale from the people of Kazakhstan.
KMG-Telf and Matin were two of the other subsidiaries deemed to be 'unfavourable'. They were both sold to different subsidiaries of a company registered in the name of Arvind Tiku, a close associate of Mr Kulibayev and the joint beneficiary along with Mr Kulibayev, of a fund worth $600 million registered with UBS. Mr Tiku's companies operate from registered offices in London.
In October 2006 100% of KMG-Telf and Mafin were sold for $340 million to Corporation Ordabasy. Mr Kulibayev earned about $310 million net income from this sale, again a theft of assets from the people of Kazakhstan.
IPO of KMG Exploration and Production via the London Stock Exchange
In 2006, KMG Exploration and Production announced it wanted to raise $1.9 billion through listing on the London and Kazakhstan stock exchanges. The underwriters were ABN Amro Rothschild and Credit Suisse for the London portion of the transaction and Visor Capital for the Kazakhstan portion.
In September 2006 KMG EP floated 40% of its stock, raising $2 billion. 67% of the shares were sold in Kazakhstan, Whilst 33% were sold as GDRs in London.
Of the shares sold in Kazakhstan, over half were placed with Thames Energy BV, owned by Lakshmi Mlttal, a UK resident and Serene Universe Ltd, ultimately owned by Mr Kulibayev, through a string of subsidiaries, in what amounted to an immediate $800 million debt for equity swap. This $800 million of debt had only been issued in July 2006, with Visor again acting as lead manager.
Clearly KMG EP listed on the London Stock Exchange under the auspices of the London Listing Authority, and a number of UK tunds still invest in the stock.
At the time of the listing Mr Kulibayev was Vice President of the State Asset Holding Company "Samruk", a parent entity for KMG E&P, and as such was a public servant. He was not at any stage disclosed as being one of the bondholders and a subsequent major shareholder in the company, in clear contravention of Listing Rules.
If the financial police in Kazakhstan investigate the IPO and decide that because of undeclared, vested interests or inadequate disclosure as to the way the funds raised would be spent. the deal was illegal/criminal. the whole listing could be declared null and void. This could result in the assets being repatriated to the state of Kazakhstan. This would strip the international investors of their stake and would reflect very badly on the London Stock Exchange and the Financial Services Authority and thus severely damage the UK's reputation as a world leading financial centre.
Avoidance of tax on the sale of ManglstauMunaiGas
In November 2009, 100% of MMG, previously bought by Central Asia Petroleum Ltd for $240 million, was sold to KazMunaiGas and China National Petroleum Corporation Exploration and Development Company. At this time Mr Kulibayev was still Chairman of the Board of Directors of KMG, so was an interested party.
The sale was framed as a stock exchange transaction made through open tenders on the Kazakh Stock Exchange, which negated the need for any tax to be paid on the transaction. The full price paid was said to be $2.6 billion. However, a press release from China National Petroleum Corporation in April, said that CNPCE&D had already signed an agreement on this purchase, so the buyer was known prior to the tender. Thus, under the rules of the stock exchange the deal could not be conducted through open tendering.
A variety of estimates for the true market price of MMG exist, but by all accounts the price of $2.6 billion was significantly less than half what would have been the actual market value tor MMG under a truly open tender. For example in 2008, MMG paid a dividend for 2007 of $2.3 billion.
Even at the stated notional price of $2.6 billion, tax of at least $652m should have been paid on the profits achieved. The true market price of MMG was closer to $6 billion, on which tax payable would have been $1.8 billion. This amount should now be recoverable from the taxpayer, Central Asia Petroleum Ltd - beneficially owned by Mr Kulibayev.