Privatisation in Uzbekistan is no new idea. Under the late President Islam Karimov, programmes in the late 1990s and 2000s existed and were ambitious in scope. But although multiple small state-owned enterprises (SOEs) did get privatised, major entities in mining, energy and manufacturing remained mostly untouched.

Such limited success in reducing state control over larger industries meant a new take was needed as President Shavkat Mirziyoyev came to power in late 2016. Privatisation as envisaged by Mirziyoyev aimed to present the country as a vibrant and reforming emerging economy to foreign investors. This drive was coupled with well-known capital markets initiatives – such as the first placement of a government Eurobond in 2019.

And so recent years have seen privatisation efforts renewed. However, until now they have still concentrated on small enterprises and unused real estate, with the state still seeming to ‘sit on two chairs’ – by attracting foreign investment without giving up any control. Notably, major SOEs in key sectors remained excluded from these efforts, with the state retaining a controlling interest in many companies.

Indeed, many observers point out that even under Mirziyoyev it has not been nearly as fast-paced and comprehensive as advertised – because the state is not actually privatising its larger strategically important assets. Investment observers have pointed out that for the Uzbek state to sell a minority stake in a SOE is fundraising, not actually privatisation.

One cannot deny that privatisation has been underway. Akmal Valijonov, at the Research Centre of the State Assets Management Agency of Uzbekistan, says privatisation in Uzbekistan has now reached a new level since 2017. And while it hasn’t occurred overnight, expecting a drastic transformation was unrealistic from the start. Though it may serve as a fundraising effort in the short term, the long-term reality is that the shareholder base is gradually evolving, and the mechanisms are increasingly in place.

But a new law on privatisation passed in early 2024 came into force in May. The legislation, No. ZRU-821, is another step towards modernising Uzbekistan’s approach to privatisation, with an emphasis on openness and regulatory clarity. The law will see significantly more public promotion and discussion of the process and assets up for sale, as well as variations in the mechanisms used – from auctions to public offerings and direct sales. The State Assets Management Agency of Uzbekistan (SAMA) is the authorised state body for privatising state property, and it has an increased mandate. In the next year or two we expect to see a new rise in the sale of important industrial assets by the state – taking various forms.

As this momentum builds, we provide a tracker of assets slated for sale, and what we can expect from major state corporates in Uzbekistan.

People’s IPO

Uzbekistan is launching a 2024 privatisation programme under the ‘People's IPO’ initiative, offering shares of some of the country’s largest companies for public sale. The programme, managed by SAMA, includes a ‘one share – one lot’ principle, where individual shares of companies such as industrial behemoth Almalyk Mining and Metallurgical Complex (AGMK), Uztelecom and other major firms will be available for purchase. The goal is to create a broad class of shareholders across the country. 

Key companies in the People’s IPO - and stakes to be offered

Almalyk Mining and Metallurgical Complex (AGMK): A leading producer of copper and other metals in Central Asia. 2% of its shares will be offered.

Uztelecom: The largest telecommunications operator in Uzbekistan. 2% of its shares will be made available.

Uzbek Republican Commodity Exchange (UzRTSB): A critical part of the country’s trading and economic infrastructure, with 2.4% of its shares up for sale.

Uztemiryulcontainer: A key logistics and freight operator. 4% of its shares will be sold.

UzAuto Motors Powertrain: A major manufacturer of automotive components and engines, with 5% of its shares on offer.

Source: URUS/CLEARPIC

Other companies participating in the programme include Uzbekiston Pochtasi, Uzbekgeofizika and Uzbekgidroenergo. This initiative aims to broaden ownership in Uzbekistan’s economy by offering shares in these companies to ordinary citizens, fostering a more inclusive shareholder base. This is also one of the louder large-scale initiatives that has not been realised yet – but is supposed to start within a few days.

This is not the first time an IPO was held. One of the notable past cases was UzAuto Motors. In late 2022, it was predicted that demand for shares would exceed supply, given that over 3mn residents of Uzbekistan use this company’s products. However, this did not happen, and the market learned a valuable lesson: a well-known brand did not help the issuer during the IPO. Due to a low investment culture and limited access to financial services, people simply did not understand why they should invest in UzAuto Motors shares or how they could profit from it. It was then pointed out that it is necessary to educate the public on what advantages come with becoming a shareholder of major national companies.

Navoi Mining and Metallurgical Company (NGMK), one of the top gold producers globally and Uzbekistan’s largest taxpayer, has undergone a redistribution of its shares. In August 2022, 2% of the company’s shares were transferred to SAMA. Prior to this, 100% of NGMK’s shares were held by the Ministry of Economy and Finance. There were discussions about partial privatisation of NGMK for some time, e.g. Deputy Prime Minister Jamshid Kuchkarov mentioned at the 2021 Uzbekistan Economic Forum that the company planned to sell 10-15% of its shares through an IPO. However, despite signs of moving towards privatisation, investors should not ever expect thisto occur fully due to NGMK’s involvement in uranium and gold mining. A presidential decree from March 2023 outlined the sale of 2% of NGMK’s shares through a public IPO on a ‘one share, one lot’ basis.

Banking sector

In 2020, President Mirziyoyev announced a strategy to reform the banking system in Uzbekistan. This includes the gradual privatisation of state shares in multiple banks such as Ipotekabank, O'zsanoatqurilishbank, Aloqabank, Qishloq Qurilish Bank and Turonbank. The sale of a controlling stake of formerly state-owned Ipotekabank to Hungary’s OTP Bank is the most famous case in the sector, as this bank was the largest out of those scheduled for privatisation. OTP Bank said in June 2023 that it had purchased 73.7% of Ipoteka’s common shares from the Uzbek government, with the remaining stake to be acquired within three years. In mid-2024 SAMA also sold minor local Poytakht Bank to UAE's Bond Investments Limited – for a mere $10mn, as part of a bid to modernise and revamp the bank.

Although it could potentially ignite investor interest in the Uzbek banking sector, the privatisation of other large state-owned banks may well take longer than the government envisages. Delays have happened in the cases of Asakabank and Uzbek Industrial and Construction Bank, which were scheduled to be privatised in 2022/23. But they are yet to undergo the necessary procedures. We could see some moves with them in ensuing months. 

Outlook

In April 2024, the president approved a list of state-owned share packages to be sold on the international market with the involvement of professional consultants.

The list includes seven state-owned companies set for privatisation:

Uzbek companies to be sold on international markets

Dekhanabad Potash Plant (100%) – to be sold in Q4 2024

Samarkand Automobile Plant (SamAuto, 75.2%) – to be sold in Q4 2024

Uzbekinvest Insurance Company (79.4%) – to be sold in Q1 2025

Uzagrosugurta (94.5%) – to be sold in Q1 2025

Inter Hotel (100%) – to be sold in Q1 2025

Thermal Power Plants JSC (51%) – to be sold in Q2 2025

Source: URUS/CLEARPIC

Additionally, the president ordered the privatisation of a 51% or greater stake in Thermal Power Plants JSC or individual power plants within the company, to begin by July 2024, based on consultant recommendations.

All in all, watch this space – and keep track of the privatisations as Uzbekistan attempts to move forward more confidently into an era of investor plurality.

ClearPic.ai is a screening platform for investors in Eurasia. Urus Advisory is a risk intelligence consultancy working across the entire region. urusadvisory.com