Russia wants to circumvent sanctions via Kazakhstan
I am translating this article into English because it is extremely important to document all potential ways Russia might try to circumvent Western sanctions. This article discusses the negotiations that took place over the weekend at the St Petersburg International Economic Forum.
Posted today via Frank Media in Russia:
Foreign assets of Russian investors can move to Kazakhstan
The idea of creating a separate exchange in Kazakhstan is now being discussed by the Russian Central Bank, the St. Petersburg Exchange, and large brokers. Companies need it to attract foreign capital to Russia, and private investors need it to trade foreign securities under sanctions
Russian market participants after the introduction of unprecedented sanctions against Russia, as well as the “collapse” of the bridge between the European and Russian financial infrastructures, are looking for new trading platforms to continue the functioning of the market. Thus, the St. Petersburg Exchange, Freedom Holding, and other participants are discussing the idea of creating a new exchange based on the Astana International Financial Center (AIFC) in Kazakhstan, four sources familiar with the discussion of this concept told Frank Media. Globally, this platform would help Russian companies raise capital, locally, it would enable the St. Petersburg Exchange and Russian professional participants to continue trading in foreign securities in the event of a complete ban on transactions and payments by foreign infrastructure.
While this idea is under discussion, the details have not yet been worked out, according to Frank Media sources. Now among the possible shareholders of this project are the St. Petersburg Exchange and Freedom Holding, however, other investors are also invited to participate in the creation of the site. “SPB exchange has trading technologies, Freedom Holding has connections in Kazakhstan and a client base,” one of the interlocutors explains. It is assumed that among the participants there may be foreign players - from Kazakhstan itself, as well as from China and even the United States.
One of Frank Media's interlocutors notes that the Bank of Russia conceptually supported the idea of creating such an investment hub in Kazakhstan, just because of the possibility of indirectly attracting foreign capital to Russia. “This will be an attempt to make a clone of the expanded Russian market with non-residents that existed before the start of the special operation,” another source explains.
The AIFC is a territory within the city of Nur-Sultan with clearly defined boundaries determined by the President of Kazakhstan, in which a special legal regime in the financial sector, established by the constitutional law of the republic, operates. AIFC jurisdiction is based on the principles, norms and precedents of the law of England and Wales and the standards of the world's leading financial centers. In January 2018, the official launch of the AIFC took place. The center operates its own exchange (AIX), whose shareholders, in addition to the AIFC itself, are also Goldman Sachs, the Shanghai Stock Exchange, the Silk Road Fund, and NASDAQ. 127 issues of securities of 85 issuers are traded on AIX. Over 308,000 investor accounts have been opened with the AIX Central Securities Depository. At the end of May, the total market capitalization of companies listing equity instruments on AIX exceeded $21.6 billion, with a monthly trading volume of $7.3 million.
In the investment hub, which one of the interlocutors ironically calls the "Petersburg-Kazakhstan Stock Exchange", foreign securities "in all time zones" will be able to trade, and Russian brokers who have specially created branches in Kazakhstan (in particular, in the AIFC), on Cyprus and other offshore zones will be able to provide investors with access to foreign securities bypassing the Russian infrastructure, two Frank Media sources say. Another Russian site, the Moscow Exchange, already owns a 13% stake in the Kazakhstan Stock Exchange (KASE), they remind.
“Perhaps we will someday come to the conclusion that it will be forbidden to trade in foreign securities in Russia,” one of the sources of Frank Media explained the reason why the idea of such a hub appeared. “Therefore, on the basis of the AIFC, it is possible to create an analog of the St. Petersburg Exchange and transfer their non-frozen securities that are now circulating on the Russian site, as well as listing new ones,” he says.
Some of the market participants are considering the UAE as a spare hub, two sources from a large broker say, but "this is a more distant story," notes one of them.
“The fact that Russian market participants will look for ways to circumvent the infrastructural restrictions that have fallen to their lot is quite expected. The search for paths for such a bypass can take various forms. In any case, by trial and error, most likely, an optimal solution will be found that will allow Russian investors to have access to foreign securities, and companies to foreign financing. And in this case, the search for a way through Kazakhstan can become one of the forms of such a decision.”
General Director of "Expert Business Solutions" (information and analytical company "Expert RA") Pavel Mitrofanov
Frank Media sent a request to the Central Bank, St. Petersburg Exchange, Moscow Exchange, and Freedom Holding.