The Uzbek government is planning to privatise several state-owned enterprises (SOEs) by floating their shares on the Tashkent Stock Exchange (TSE) and has turned its attention to getting them ready, but the market remains narrow and shallow. There is still a lot of work still to do.

The market is functioning but new laws are required and integration into the global system needs to be finished.

“We need foreign investors to grow the market. It is currently easier to buy shares in Uzbekistan than to hold them. We have engaged with Clearstream and the global custodians. In the next year we will have a link up and running. Then we will see a jump in interest,” says Giorgi Paresishvili, the head of the Tashkent Stock Exchange (TSE), who previously reformed the Georgian stock exchange and described his plans in an interview with bne IntelliNews.

The bond market has seen the most progress with the first domestic corporate bond issue last June by the white goods manufacturer Artel in a landmark deal.

And Uzbekistan’s debut $1bn Eurobond issued on the London Stock Exchange (LSE) in February 2019 proved a smash hit, with demand of over $8.5bn, or eight-times oversubscribed. The launch was made with yields of 4.75% on the 5-year note and 5.375% on the 10-year note and was greeted with an air of optimism among investors who attended Uzbekistan’s New York, Boston and London roadshows. The issuance is set to pave the way for regular debt sales and sets a sovereign benchmark that will allow the biggest SOEs like oil and gas company Uzbekneftegaz to issue their own eurobonds.

“Eurobonds were successful as the last year's were some of the best conditions for issuing bonds in decades,” said Odilbek Isakov, CEO of Infrasia Capital and a former deputy finance minister, as part of a panel on the Uzbek capital markets at the European Bank for Reconstruction and Development (EBRD) annual meeting in Samarkand. “But those conditions have passed and we have to accept rates won’t go down again for the next few years.”

Isakov says that the state will continue to issue more Eurobonds as well as treasury bills on the local market both to raise capital and to develop the market.

The volume of state treasury bill issues has been rising fast, up 20-fold in the last five years, Isakov says. Currently local banks are the only players on the local bond market, but the hope is to repeat Ukraine’s success: after Kyiv was hooked up to Clearstream billions of dollars of foreign capital entered the local bond market, becoming an important new source of funding for the state.

More reforms are needed. The Ministry of Finance is still working on a draft capital markets law and the pension and insurance businesses are tiny.

But development of the equity capital market has been slow and marred by disappointment.

Much hype surrounded the People’s IPO of UzAvto last autumn, which brought in $5mn, making it the biggest listing ever, but the government and investors were still disappointed.

“IPOs must make money. This is not a charity business. The more money an IPO makes the more successful they are,” Paresishvili. “Foreign investors looked at [UzAvot IPO] and decided it was too expansive. We have to admit that we are a small new market far away and that means we need to offer discounts to attract some interest… UzAvto price fell some 20% after the IPO and its price remains below the IPO price.”

In the run-up to the listing a large public awareness campaign was launched and workshops and roadshows organised to explain to the public the merits of investing in shares.

The government was hoping to tap part of the billions of dollars worth of the so-called mattress money, the cash savings of the population, into the issue. But in the end few retail investors were tempted.

Several more top Uzbek companies are being prepared for similar listings, but it will take time and effort to tempt international investors into the market. The authorities have taken the experience in their stride. “More IPOs are planned and lessons have been learned,” says Paresishvili.