Orient Group is one of the three biggest companies in Uzbekistan with a 20-year track record in a wide variety of industries and sectors and now the holding is getting ready to take its business to the next level.
The holding has been flourishing but now it is transforming itself to bring its corporate governance, management and accounts up to international standards, as it has already opened talks with international banks with a view of raising capital and as part of a five-year plan to transform into a financial investment powerhouse.
Uzbekistan is rising as six years of effective reforms under President Shavkat Mirziyoyev start to bear fruit. Previously the government kept a tight grip on the economy, but Mirziyoyev has loosened that hold and instead tried to create an open, market-based economy. Companies have responded by seizing the new opportunities this has opened up.
“The reform programme started in 2016 but now we are seeing the results of those reforms. You just need to do business. All the administration, the tax code, the bureaucracy of the old system – the government is trying to take steps and remove the burdens that stop development,” Davron Ozgurer, head of corporate finance of Orient Group Management, told bne IntelliNews in an exclusive interview from Tashkent. “Protection of investment and property rights has gotten better. Before business was afraid to invest but now the government has made sure it is all legally protected. The appetite for investment has gone shooting up many times as a result.”
Ozgurer says the group is in active discussions with international investors and banks that have become increasingly curious about the opportunities on offer in Uzbekistan. Business has reached a new phase: before the reforms began business had to consider the wishes of the government first and foremost, but in the new climate, “The corporate sector is responding to the reforms and the market is making the decisions.”
“Corporates want foreign capital and are becoming more open and transparent in order to get access to bonds and IPOs,” says Ozgurer. “Both the big and smaller players are learning the new rules of the game: not to go to the government for help, but to go to the market.”
Orient Group has a very diversified portfolio with interests in real estate, agriculture, textiles, retail and a slew of other sectors that are riding the wave of the country’s transformation.
The company has also garnered some notoriety, as it was linked with President Mirziyoyev in a report published by Radio Free Liberty/Radio Europe (RFE/RE), based on an investigation by Professor Kristian Lasslett of the University of Ulster, which suggested that Orient Group was benefiting from these ties.
“Orient Group, which is linked to Oybek Umarov – a relative of Mirziyoyev – received [tens of millions of dollars from the country's sovereign wealth fund] through the Uzbek Oman Investment Company (UOIC), the investigation showed,” RFE/RL claimed.
Seventy-five percent of the UOIC's charter capital is owned by the Oman Investment Authority and the remaining 25% is owned by Uzbekistan's sovereign wealth fund, the Fund for Reconstruction and Development.
“Umarov, a founder and shareholder of Orient Group, is the younger brother of Otabek Umarov, who is married to Mirziyoyev’s daughter, Shahnoza,” RFE/RL continued, but also pointed out that its investigation had not turned up any illegal acts or corruption, but did imply the company had benefited from nepotism, without providing any concrete evidence.
The Orient Group deny that it has any connection to Umarov or any companies controlled by him.
"Orient Group is a multi-industry holding with a diversified asset structure across several business directions. The information on the companies that make up the Group can be found in public sources, including the official website. The same applies to the founders of Orient Group Management (OGM): Mr. Oybek Umarov is not among them or among the beneficiaries of individual companies of the holding.”
Ozguer happily admits that Orient has done a lot of business with the Uzbek Oman Investment Company (known as UzOman by the locals), but here too Ozgurer claims that all the deals were above board and went through the normal checks.
“We had to compete with other businesses in any deal we did with the Uzbek Investment Fund and UzOman,” says Ozgurer. “That includes the regular due diligence and audits by a Big Four consultant. There was a huge and lengthy negotiating process and most of the projects we were putting up were rejected by the fund. We were not given any preferential treatment. And the fund earns dividends from those projects that went ahead. They have all been very profitable.”
Specifically RFE/RL carried out its investigation together with Kristian Lasslett, a professor at the University of Ulster, and claimed that 86% of UzOman deals ($161mn) had been done with Orient Group, which is far more than the fund's official accounts report that are audited to international standards. According to bne IntelliNews' Uzbek sources, the total value of deals concluded between the private equity fund and Orient Group amounted to "just over 30%" of the fund’s total investment in Uzbekistan.
Ozgurer explains the connection, as UzOman is by far the largest private equity investor in Uzbekistan, which at this point has attracted very little financial investment from other countries. And one of Orient’s biggest businesses is real estate development. Orient has built six large international standard shopping malls and sold three of them to UzOman.
“There are seven main business areas,” Ozgurer explained. “One of the largest is real estate development, where we have some 20 projects to develop residential and commercial spaces.”
The company recently completed Mirabad, its first premium residential project targeting Uzbekistan’s newly emerging middle class, and has more of these projects planned as the country’s economy continues to expand at about 6% a year.
The international standard commercial real estate projects are also very attractive, as they also come with an exit. In addition to the three malls sold to UzOman, two more were sold to private Uzbek investors and the group plans to build more.
“There is still a huge gap in the market in residential and commercial real estate,” says Ozgurer. “Now we are aggressively developing both residential and commercial projects and have also started to build the first class A office projects in the country.”
As part of the real estate business Orient Groups has invested into the production of construction materials, creating a vertical business that starts with the production of cement and bricks, runs through the construction of the buildings and ends with furniture and furnishings that are also made by companies within the group.
“We produce a variety of building materials, including plastics, cement, concrete, steel sleepers, bricks and crushed granite. Our steel processing, for example, is the biggest in Central Asia,” says Ozgurer.
As an adjunct to the real estate development business, Orient Group has also opened a few hotels, as tourism is a fast growing business. The first was opened in 2021 in Khiva with 100 rooms to cater to the tourist traffic that visits this legendary Silk Road way station.
“Hotels are not a core business for the group,” says Ozgurer. “But there are not many hotels in Khiva and tourism is booming as the government is very focused on developing the industry.”
Like Orient Group’s foray into car dealerships (see below), the company has also set up various businesses in the social sphere related to real estate, including private schools and kindergartens that are non-core businesses.
The bazaars of Uzbekistan are the stuff of legend and have been operating since the times of Alexander the Great, who established Alexandria the Furthest on what is now Uzbek territory. The trade in the bazaars was the lifeblood of the Silk Road trade route that ran from Venice to China, but they are giving way to modern organised retail.
With 35mn people, Uzbekistan is by far the most populous country in Central Asia and the third most populous amongst the Former Soviet Union (FSU) after Russia and Ukraine. That makes it by far the most important consumer market in the region.
Orient Group is a big player in the burgeoning organised retail sector where it owns Macro, the leading supermarket chain.
“Macro already has 109 stores and employs 44,000 people,” says Ozgurer. “The philosophy is the same in this business. We have a logistics company, where we are the largest player in Uzbekistan, and four hubs in Tashkent. Orient was the pioneer for introducing the drive ports system for trucking. And we have built the country’s first class A modern warehouse to support our own retail business.”
The retail business has been growing in leaps and bounds, but with a per capita income of only $7,350 on a PPP basis in 2020 compared with neighbouring Kazakhstan’s $24,380, there is still a long way to go.
The car market has been growing on the back of the rising incomes and Uzbekistan is home to a well developed automotive industry that started life as a joint venture with Korea’s Daewoo industries, but after it went bust the business was for some time part of General Autos before finally becoming an Uzbek-owned enterprise, which is slated for privatisation in the next two years. The dominance of the car plant in Andijan explains why almost all the cars you see on the road in Tashkent are white Chevrolets. (The cars are all white as it keeps the occupants cooler during Uzbekistan’s scorching summers.)
As with most of its business, Orient Group has gone up-market for its automotive business, setting up dealerships to sell imported models to better off middle classes that don't want a Chevrolet.
“Before we got into the business there was no organised selling of cars at all. Ours were the first dealerships,” says Ozgurer.
Uzbekistan has long lived off its cotton production exporting it all over the world. The cotton industry is so central to the economy that the cotton plant is part of the national emblem. However, as part of the reforms introduced by President Mirziyoyev after he took over in 2016 was to ban raw cotton exports and force the entire industry to go up the value chain.
That unleashed an investment boom into new quality production facilities. Orient Group owns the largest cotton yarn production facility in the country, a “Rolls Royce” of plant, says Ozgurer, as the group went straight to state-of-the-art and produces some of the highest quality yarn on the international market.
“We have customers queuing up for our yarn, as there are few products of comparable quality on the international market,” says Ozgurer. “The plant is fully automated to produce grade A yarn. And we also produce semi-finished leather that we mostly export to Italy.”
Orient Group built the circa $100mn plant in 2017-18 from scratch and this is the second year it has been operating at full capacity. And the combination of low labour costs with a top quality product makes the yarn very competitive on the international markets.
The other half of Uzbekistan’s state emblem is an ear of wheat, as agriculture in general plays a major role in the Uzbek economy. Visit an Uzbek home and you are always greeted with a lunch table loaded with delicious fruit, nuts and vegetables that are famous throughout the FSU.
Orient Group has invested heavily into cherry and tomato production as the colder FSU countries to the north rely on Central Asia and Turkey for these products.
In the region of Namangan Orient has a massive 500-hectarre cherry orchard, one of the biggest in the world, and a 92ha warehouse, as well as 100ha of greenhouses to grow tomatoes.
The cherries are transported to a processing facility in Surkhur and Tashkent to be dried, but much of the output is transported fresh to markets in Russia and other CIS countries.
“The cherry business is a big business. The orchard was planted in 2017 and those trees are only maturing now, so the yields are starting to go up. The 500ha orchard is huge in global terms. We export a lot to Russia, but now we are starting to look at the EU and we have opened talks with Germany. Some of the exports also go to China,” says Ozgurer.
“The tomatoes are also of very high quality and sell extremely well,” Ozgurer adds. “You should try Uzbekistan’s “pink paradise” tomatoes – they are the best in the world! But very expensive.”
Funding and change
The group has been funding all its investment activity mostly from retained earnings, but like other leading companies in the country, the group is now starting to look at taking on more debt to accelerate its expansion. While the group doesn't release its financials, Ozgurer told bne IntelliNews that the EBITDA to debt ratio is of the order of x3 and the company is now in active talks with western bankers to raise more credit.
“Nothing is decided yet. We are just looking at options, but we could issue a bond, or maybe take a syndicated loan. Eventually, an IPO could be possible,” says Ozgurer.
Ozgurer says the group is in the midst of transforming itself, as it gets ready to go to the next funding level. The company has been hiring experienced expat managers to bring its standards of corporate governance and management to international standards. It is also now audited by a Big Four accountant and has been producing IFRS standard accounts for the last two years.
“We have brought in expats to transform the company and reorganised the group. Before it was just a bunch of companies but now we are creating a true holding with a board of directors at group level,” says Ozgurer.
A new strategic plan has been adopted and the group may shear itself off some of the non-core operations, says Ozgurer. It is not clear exactly what it will keep and what it will sell off, as the details of the strategy are currently being worked out in co-operation with the Big Four advisors.
“Now we are well diversified, but we plan to exit some of the businesses and sectors but we are also considering getting into some new businesses too,” says Ozgurer. “The main change will be that now we are an operational company – we make and sell things – but the plan is to transform into more of a financial holding. But that will take time.”
As part of this transformation the group is prepared to sell off some of its equity in some of its businesses but to retain stakes as a financial investor and even as a minority stakeholder.
“I think real estate will always remain a core business,” says Ozgurer. "But we are ready to sell some of other existing successful businesses. We are always ready for mutual partnerships to grow even faster and to implement new business projects together – both in construction and new business areas."