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AFC Uzbekistan Fund September 2021 Update


Dear Investors and Friends,

September 2021 saw the AFC Uzbekistan Fund reach a new all-time-high, while having doubled its NAV since inception. This month was one of the most exciting in a long while, with new developments in the economy and capital markets announced. We are still in the early days of Uzbekistan’s transformation from a centrally-planned to free-market economy and are excited for its continued liberalization as the AFC Uzbekistan Fund is well positioned to benefit from the coming step change in the capital markets, specifically. The September 2021 fund NAV increased to a new estimated all-time-high of USD 2,012.3 (+0.9%) or +101.2% since inception on 29th March 2019. Assets under management also reached a new high of USD 18.5 mln during the month.

AFC Uzbekistan Fund valuations as of 30th September 2021:

 Estimated weighted harmonic average trailing P/E (only companies with profit):

 Estimated weighted harmonic average P/B: 1.59x
 Estimated weighted portfolio dividend yield: 5.80%


We are now entering Phase II                                                         

Our long-held thesis for the development of the Uzbek capital markets, and the Tashkent Stock Exchange in particular, has been that their transformation to a well-functioning market would occur over a period of three phases. I’ve re-iterated these phases for new readers below:

Phase I began in 2018 and is now concluding. This is the initial re-rating phase where companies and the broader stock market were forgotten and viewed as undesirable by local investors due to a combination of high inflation, term deposit rates in the mid 20% range, and a depreciating Uzbek Som. Foreign investors were notably absent as well due to capital controls specific to the capital markets, though these were finally eliminated on 2nd March 2019 when Asia Frontier Capital was the first foreign investor to successfully test the repatriation mechanism. These challenges made listed equity valuations extremely depressed, in multiple cases trading with dividend yields greater than 30% and accompanied by net profit growth rates of greater than 400%/500% as the Uzbek economy began to be liberalized. The Phase I re-rating has seen listed equities go from “never should have been so cheap” to now value-oriented and buttressed by strong profit growth profiles.

Further during Phase I, inflation has fallen to 10.8% with the Central Bank targeting sub 10% inflation in 2022, while currency deprecation has greatly moderated. 2021 depreciation expectations versus USD are projected to be in the 3-4% range, compared to 10% in 2020 and 13.9% in 2019. These developments have thus far attracted more local, and increasingly foreign capital, into the stock market, thereby adding needed liquidity.

Phase II we expect to occur between 2022-2025. This phase should see SOE’s (state-owned enterprises), what we call the “crown jewels” of Uzbekistan’s economy, being privatised through domestic IPO’s and SPO’s and eventual dual listings abroad, likely in London. These companies include the national airline, Uzbekistan Airways, one of the biggest gold mining companies in the world, Navoi Mining and Metallurgical Kombinat, a leading copper producer, Almalyk Mining and Metallurgical  Kombinat, and one of the largest steel plants in Central Asia, Uzmetkombinat, among others. These listings should attract significant foreign and local capital to the Tashkent Stock Exchange, increasing liquidity and interest in the market.

Phase III we expect will see private sector companies IPO once the stock market is liquid and has enough investor participants, both institutional and retail, to absorb larger share issues. This phase should overlap with Phase II and we are already seeing private sector companies considering eventual IPO’s which is highly encouraging.

Big conference news!

During the CBonds conference on 9th September 2021, where I had the opportunity to speak on a capital markets development panel, Deputy Minister of Finance, Mr. Odilbek Isakov headlined the event where he cracked open the proverbial cookie jar on the government’s plans for our “Phase II” expectations. He mentioned that over the next several years we should expect to see fifteen IPO’s/SPO’s, including five state-owned banks, three insurance companies and two metallurgical plants, among others. Focus will be put on seeing a gold-backed ETF (presumably similar to the    NYSE: GLD ETF in the USA) and equity ETF’s launched on the Tashkent Stock Exchange. A secondary market for debt securities will be introduced, while inflation-linked bonds will be issued. Strengthening of corporate governance was also mentioned as a key focus, as well as the central securities depository enhancing its technology to allow for the issue of ISIN codes for securities with a medium-term aim of connecting to Euroclear/Clearstream systems, and enabling automated dividend distribution. Last but not least is the Ministry of Finance’s plan to enable Uzbek citizens to open brokerage accounts online (digitally) over the coming months. This will hopefully be followed by permitting foreign individuals and corporates to do the same sometime in 2022 once the legislation is in place to permit this. Digital account openings will make the onboarding of new brokerage accounts much easier and thus accelerate market development.


Deputy Minister of Finance Odilbek Isakov announcing significant plans for the capital markets at CBonds Tashkent conference on 9th September 2021

(Source: AFC Research)


During a second conference, the Uzbekistan Economic Forum 2021, held on 29th and 30th September, significant news was announced by Deputy Prime Minister of Economic Development and Poverty Reduction, Mr. Jamshid Kuchkarov, regarding the government’s privatisation plans with the most impressive news being that gold miner, Navoi Mining and Metallurgical Kombinat could see 10% to 15% of its shares privatised through a local and international IPO. He also mentioned the government’s long-term focus of having 30% of board members on SOE companies independent and the hiring of international management to increase transparency and efficiency.

Looking more near term however, our takeaways from the conference include the potential for a partial privatisation (up to 12%) of the Uzbek Commodities Exchange (TSE:URTS), a secondary offering of up to to 14% of Uzmetkombinat (TSE:UZMK), and UZMK issuing a corporate bond worth UZS 50 bln (equivalent to USD 5 mln) with a planned coupon of 23% and 18-month duration. These SPO’s will greatly improve liquidity and hopefully lead to hundreds, if not thousands, of new brokerage account openings by both local and foreign investors which will give the capital markets a big shot of adrenaline in the arm.

UZMK is just one of several companies we are excited to see undergo further privatization. Surely if the government can achieve some “layups”, to use a basketball term, in the early stages of its privatisation campaign, we should increasingly see private sector companies explore IPO’s. We are aware of several companies already interested in a possible IPO as they see the proverbial writing on the wall for what the capital markets of Uzbekistan can become if phase II’s privatisation of SOE’s is successful.

Scott Osheroff speaking on a panel with Deputy Minister of Finance, Mr. Odilbek Isakov, at the Uzbekistan Economic Forum 2021

(Source: AFC Research)


Concluding this month’s update, in early September I travelled to Bukhara for the extraordinary general meeting of a portfolio company of ours. Arriving in the evening, I took a walk around the old city and snapped the below photo of the Poi-Kalyan ensemble which is always strikingly beautiful.

Bukhara's Poi-Kalyan ensemble 

(Source: AFC Research)


For further viewing here are some interesting, relevant news links related to Uzbekistan:

The country will never go back to the past

ADB raises Uzbekistan growth projections for 2021 and 2022  

Veolia to manage Tashkent heating system for 30 years

Uzbekistan's good reasons to be on good terms with the Taliban                             

AFC Uzbekistan Fund Marketing Information as of the end of August 2021



The next cutoff date for subscriptions will be 25th October 2021. If you would like any assistance with the subscription process, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it.

Best regards,

Scott Osheroff

CIO AFC Uzbekistan Fund