A struggle to control a Canadian firm in Kazakhstan may be a sign of a new phase for foreign investment in the CIS. Our correspondent Michael Lelyveld says well-connected companies in the region have become richer, more powerful, and aggressive, thanks to a year of higher oil prices.
Boston, 23 April 2001 (RFE/RL) -- Kazakhstan has become the scene of an unusual battle as Kazakh interests try to gain control of a Canadian oil firm. The move may mark the first takeover attempt for a Western company by shareholders in the CIS.
In the last week, investors have been stunned by the bid for Hurricane Hydrocarbons, a Canadian oil company which has operated in Kazakhstan for the past five years. In a surprise move, an affiliate of Kazakhstan's Kazkommertsbank offered last week to buy a majority of Hurricane's shares for $121 million.
To those familiar with Wall Street, the drama had all the elements of a classic hostile takeover fight. The defending management of Hurricane criticized the offer as "ridiculously low" and "unprofessional," saying it violated previous agreements.
The Kazakh affiliate, Central Asian Industrial Holdings, responded that it was only seeking to serve the "best interests" of shareholders and that it had "the resources, the experience and the knowledge" to increase profits.
Such statements are standard fare in Western fights to seize corporate assets. But it is remarkable how quickly the terms and tactics have taken root in the East.
Central Asian Industrial Holdings is not technically a Kazakh company. It is registered in the Netherlands Antilles, a group of Caribbean islands where corporate laws are less strict. The company, which reportedly has financial links to the son-in-law of Kazakhstan President Nursultan Nazarbayev, already owns 30 percent of the Canadian firm.
The two sides share a history of bitter disputes. In 1998, Hurricane sought court protection against debts after a clash with Central Asian Industrial Holdings over refinery fees. Hurricane controlled the Kumkol Munai oil field in southern Kazakhstan, but the Kazakhs owned the Shymkent refinery, which processed the oil for a costly fee.
Hurricane agreed to settle the conflict by buying control of the refinery for $57 million and 30 percent of its own shares. But the trouble continued. Last December, armed mercenaries occupied the refinery and held the staff at gunpoint until a truce was declared, according to Platt's, an industry news service.
The takeover bid may mark a new stage for foreign investment in the CIS. Such moves would have been inconceivable only a few years ago.
In 1995, for example, a group of CIS officials and factory managers came to the United States in search of investment. At one stop, they were greeted by an American mayor who was not well-versed in international affairs. The mayor concluded his welcome by telling the visitors that his city was a good place for them to invest, not realizing that they had no money and were desperately hoping that investment would flow the other way.
While the mayor's speech drew laughter from experts six years ago, it might not do so now. In February, Russia's Lukoil bought the Getty chain of 1,300 gas stations in the United States for $71 million, marking the first Russian purchase of a publicly-traded U.S. firm.
Some oil giants from the region have been raking in profits and raising their borrowing power, thanks to higher world energy prices over the past year. In Kazakhstan, oil and political power also seem to be combining in efforts to pressure foreign investors who were once welcomed with open arms.
Late last month, the Kazakh government drew up a list of companies that would "contribute" to a national fund, the newspaper "Respublica" reported. The companies, including Hurricane, were chosen because their "super profit" came from natural resources and the high price of oil, the paper said.
While such funds may be used to distribute windfall taxes fairly for social benefits, the targeting of specific companies suggests that a squeeze may be on in Kazakhstan.
According to an Interfax report this month, the government is also drafting a new investment law because of concerns that foreigners have been granted better breaks than domestic firms.
The government's mood seems to have changed markedly since January 2000, when Foreign Minister Yerlan Idrisov vowed that it would improve the investment environment for foreign companies. At the time, Idrisov told a meeting of U.S. business people, "We shall not be deaf to your suggestions."
If the environment has changed, it now seems more hostile toward foreign investment. But it is uncertain that the trend will serve the country as a whole.