Kyrgyz Republic: Assistance on the Privatization of the Kairat Bank
FIRST does not usually get involved in single entity privatizations but in this instance it was agreed that the project would be breaking new ground (no bank privatizations had taken place and expertise in the process was lacking) and the transaction would therefore inform policy and facilitate smoother locally handled privatizations in the future.
The Kyrgyz FSAP recommended the privatization of Kairat Bank, as the solution to the government’s resolution plan for that bank. The financial sector would be best enhanced by privatization to a strategic investor, who can provide significant lending experience and strong governance.
The State Commission on State Property and Direct Investments of the Kyrgyz Republic (State Commission), which was the executive body charged to conduct the privatization, did not have the skills to privatize a bank according to best practice.
Whilst normally such a privatization would be supported by an IFI, the World Bank did not have the resources to support more than a valuation exercise during 2003. It was not feasible to pay for privatization advisory services through the private sector, because the anticipated sales price was low.
Kairat had already undergone substantial restructuring and rationalization, and attracted 9%of the total Kyrgyz deposit base. Management of the bank had positioned Kairat to serve an important niche serving the top end of the Kyrgyz private sector who demanded quality trade settlement services and security of deposits.
The purpose of the project, which was initiated in June 2003, was to facilitate the privatization of Kairat Bank to a financial sector strategic investor, in a transparent manner, in accordance with international practices. Outputs included a market assessment, approach to privatization designed, tender documentation prepared and privatization process conducted in line with best practice.
The project was to be split into two phases. The first phase allowed an expert assessment of the privatization prospects, supported consensus building on price, and the preparation of an action plan. Based on the assessment, phase 2 activities were targeted at providing advice to conduct a successful privatization.
- The need to allocate sufficient time and effort in the process for a full consensus to be built among the concerned stakeholders. In the case of Kairat Bank’s privatization, the primary stakeholders were represented by the members of the nine-member Tender Commission.However, in actually going through the privatization process, a difficulty faced by the consultant, and which was more time consuming than anticipated, was the need to agree on some of the major documents, such as the rules of tender and the Draft Share Purchase Agreement, with a substantial number of institutions and experts. Originally, it was expected that the Tender Commission would have the sole authority to be able to give comments and take decisions on these documents. In reality, since the nine members of the Tender Commission had little, if any, experience in privatization (with the exception of the representatives of the State Committee) and none had any experience in bank privatization, they provided the documents for comments and suggestions to experts from different departments of their respective institutions. This factor increased significantly the number of people that the consultant had to contact and educate about the privatization process. On a positive note, all the experts who were contacted for discussions, with just a few exceptions, were very open for advice and willing to provide support and co-operation.
- During the course of project implementation, the consultant successfully used roundtable discussions to facilitate consensus building. FIRST would recommend this as a solid approach for future projects, whether in the area of privatization or other areas involving many stakeholders. Without consensus, backsliding, delays or total loss of forward momentum are entirely possible.
The project was a success and resulted in a sale to a suitable strategic partner. Most of the outputs are too particular for benefiting other situations except the Tender Evaluation Guidelines which contain useful formats and procedures for the evaluation process.
 The nine Tender Commission members were represented by the following institutions: State Committee, Ministry of Finance, Apparatus of the Prime Minister, Ministry of Justice, Central Bank, National Security Service, Kairat Bank and the Antimonopoly Commission.