The government of Kazakhstan has effectively gained control over most shares in the major international mining company Eurasian Resources Group (ERG). In late May, shortly after making the list of Kazakhstan’s richest people, businessman Shakhmurat Mutalip bought a 40% stake in the company. As The Insider found, Nurlan Zhakupov, chairman of the state-controlled Samruk-Kazyna fund, joined ERG’s board shortly before that deal went through.
A billion-dollar deal
ERG announced Mutalip’s purchase of part of the company on May 22. Its news release said he had bought a 39.3% stake from businessman Patokh Chodiev and the family of the late Alexander Mashkevich. Another 40% of the shares belong to the state, while the rest are held by CEO Shukhrat Ibragimov, the son of one of the company’s founders, Alijan Ibragimov.
The 40% stake was valued at about $1.4 billion. As The Insider previously reported, Mutalip had already made a $200 million advance payment in early May, while the remaining $1.2 billion could have been covered by proceeds from bond sales by Nature Energy Solutions Ltd., a company owned by the businessman.
Nature Energy Solutions issued the bonds in mid-May. However, according to data from the Astana International Financial Centre (AIFC), no trading activity has been recorded since opening on May 20. All exchange indicators are at zero, meaning there has been no trading in the securities.
The origin of Mutalip’s money is unclear, a point previously raised by Kazakh investigative journalists at Radio Azattyq. The 35-year-old businessman appeared on the local Forbes list of Kazakhstan’s 75 richest people only in May. He was a newcomer to the ranking and its youngest member, placing 22nd.
There is also a Russian connection in Mutalip’s biography. Sources have told The Insider that he has close ties to Russian bankers, is personally acquainted with VTB President Andrey Kostin, and was “introduced” to Russian banks by the oligarch Alisher Usmanov. More details on Mutalip’s ties to Russia are available here.
Changes on the board
Shortly before the billion-dollar deal, The Insider found that Nurlan Zhakupov, chairman of the sovereign wealth fund Samruk-Kazyna, joined the board of directors of ERG Sarl in Luxembourg, the group’s main legal entity. The information appears in an extract from Luxembourg’s legal entities register obtained by The Insider.
Zhakupov replaced Madi Takiyev, Kazakhstan’s finance minister, on the board. Takiyev, however, is still listed as a board member on the company’s website, while the head of Samruk-Kazyna is not mentioned. Zhakupov joined the board on May 15.
Although Samruk-Kazyna calls itself a national welfare fund, it is not an exact equivalent of Russia’s National Wealth Fund. Instead, it is a commercial structure — an investment holding company that includes companies in the oil and gas sectors, as well as in the chemical and nuclear industries, the mining and metals sector, and the fields of energy, logistics and machine-building. Its holdings include KazMunayGas, which accounts for about a quarter of Kazakhstan’s oil production, and Kazatomprom, which handles uranium and nuclear fuel exports and imports. Kazakhstan’s Forbes has called the company a “holding of holdings.”
Samruk-Kazyna’s sole shareholder is the government of Kazakhstan. Formally, the fund can be compared to Russia’s Rostec state corporation, another large conglomerate that oversees various enterprises.
The fund describes its mission as promoting sustainable economic development and says it is committed to creating market competition. “As a co-investor, the Fund will participate only in critically important projects that cannot be implemented by private investors,” its website says.
ERG, for its part, is indeed a critically important project for Kazakhstan. The company accounts for about a third of the country’s mining and metals sector. It is also a key electricity supplier and a major railway operator across Central Asia.
The debt keeper
Still, it is notable that the fund did not receive a stake in ERG, but only a seat on its board. By contrast, Shakhmurat Mutalip, who obtained a controlling stake in the company, holds no position there at all.
A source close to ERG told The Insider that this can be explained by the state holding company’s strong interest in the asset.
It is also notable that shares in Mutalip’s company, Nature Energy Solutions, have been listed as collateral since May 20. This means the owner of the shares pledged them in order to obtain borrowed funds, and the creditor may sell them if the borrower fails to meet his obligations.
In the case of the ERG purchase, a source close to the company said the deal may have been financed by Samruk-Kazyna. That would explain Zhakupov’s appointment to the board. He became a kind of “debt keeper,” the source said.
“Mutalip has a deadline, I think until Nov. 1. He has to return the money. It appears he will not return it. It is clear he will not raise the money on the international market,” the source said.
The Insider’s source said Samruk-Kazyna could in the future receive ERG shares against the debt and become the full owner of the mining company.
“ERG will become 80% state-owned. It is, you know, a kind of quasi-nationalization,” the source said.
The Financial Times previously reported that ERG was facing de facto nationalization in Kazakhstan. At the time, this was linked to the fact that Roman Sklyar, then Kazakhstan’s deputy prime minister and now head of the presidential administration, had joined the company’s board in March. He received his new post only on May 5.
Now ERG faces the risk that nearly half of its shares could come under state control not only through the presidential administration, but also through the state holding company.
The Insider sent requests for comment to ERG, Samruk-Kazyna, and Nature Energy Solutions Ltd., but had not received responses by the time of publication.
