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AFC Uzbekistan Fund December 2022 Update


Dear Investors and Friends,

The AFC Uzbekistan Fund ended the last month of a volatile 2022 for global financial markets in positive territory. New money came into the Uzbek market during December, where buyers bid up equities across the board. The market’s relative resilience compared to the volatility experienced in global financial markets during the year is a testament to the continued liberalisation of Uzbekistan’s economy and its uncorrelated nature to international markets. Meanwhile, the companies listed on the Tashkent Stock Exchange continue to benefit from the tailwind of the country’s economic growth. The December 2022 fund NAV rose to an estimated USD 1,740.56 (+0.1%) or +74.1% since inception on 29th March 2019.


AFC Uzbekistan Fund valuations as of 30th December 2022:

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

 Estimated weighted harmonic average P/B: 0.99x
 Estimated weighted portfolio dividend yield: 4.10%


2022 year in review

2022 could best be regarded as a transition year for Uzbekistan’s capital markets as the much anticipated capital markets legislation and several planned IPO’s have been pushed into 2023. This is par for the course in a young market, especially considering how far Uzbekistan has come since we started investing in the country in 2018, as well as the capacity challenges that exist in all aspects of government and business.

There were several notable events which occurred in 2022. The first was the fiasco surrounding Uzmetkombinat (TSE: UZMK) where it was expected at the company’s annual general meeting (AGM) on 15th March 2022 that a dividend would be paid. Traders decided to take advantage of this rumour and sold shares after the closing of the shareholder register on 7th March 2022 (in Uzbekistan this is five business days before the AGM, whereas in most all other countries the ex-date is after the meeting).

To everyone’s surprise, at the AGM it was announced bonus shares would be paid in lieu of a cash dividend and the ex-date to be included in the register for the bonus shares would be different than that for the AGM. This caused chaos in trading of the company’s shares, ultimately leading the financial regulator to implement a trading halt on 14th March 2022 after the company’s shares fell 60% in five trading days. Due to these events and the size of UZMK in the AFC Uzbekistan Fund, we decided it was prudent to suspend issuing a NAV for March 2022.

Thankfully, on 12th April 2022 shares of UZMK commenced trading after bonus shares had been issued and the price adjusted accordingly. However, the issuing of bonus shares to investors led to consistent selling in the market by retail investors which impacted the fund’s performance, but simultaneously allowed us to collect more shares of the company at attractive prices. Only in the final quarter of 2022 did the selling abate and in December 2022 alone the company’s shares are up 20%.

The second big event for the fund and capital markets during the year was the appointment of Giorgi Paresishvili as the new acting head of the TSE. Mr. Paresishvili has 27 years of experience in banking and capital markets and had been the head of the Georgian Stock Exchange since 2014, prior to moving to Uzbekistan in September 2022. In addition to enhancing efficiency at the Tashkent Stock Exchange, his larger task is to connect the exchange to ClearStream which will enable foreign investors to trade Uzbek stocks and bonds without opening a local brokerage account, which is currently a bottleneck to increasing investor interest in the local market.

Lastly, while we are anxiously awaiting the new capital markets legislation, supposed to have been passed by the Oliy Majlis (Parliament) this year, there were some reforms in the capital markets. On 17th January 2022 a presidential resolution was announced stating that among other things:

  • From 1st April 2022 until 31st December 2024 there will be zero dividend tax on shares held in personal accounts (local and foreign individuals), while dividend tax for accounts held by non-resident legal entities will drop from 10% to 5%, in line with the dividend tax on local legal entities.
  • Interest income on corporate bonds will be tax free for both local and non-resident persons and legal entities.
  • From 1st July 2022 a stamp duty of 0.3% will apply to all transactions on the Elsis Savdo OTC platform, aligning its fee structure with that of the Tashkent Stock Exchange (previously, the Elsis Savdo platform charged a 20% duty on gross proceeds of a sale regardless of whether a profit or loss was made). Additionally, when a stock is demoted to the OTC market, minority shareholders will be able to request a mandatory buyback of their shares at the market price.
  • Foreign stock brokers will now be able to operate as underwriters in Uzbekistan, together with locally licensed brokers with at least UZS 500mln in equity (equivalent to about USD 46,200).
  • Local Uzbek entities will have to IPO locally before they can list abroad, or do both simultaneously.

Uzmetkombinat’s roadshow begins

A core holding of the AFC Uzbekistan Fund, and one we have written about many times over the years, is the largest steel producer in Uzbekistan, Uzmetkombinat (TSE: UZMK). On 15th December 2022 the underwriter for the privatisation of up to 5% of the company’s shares, Avesta Group, kicked off the company’s roadshow in anticipation of the offering which is expected to occur in the first half of 2023. Held at the Hyatt Hotel in central Tashkent, I had the opportunity to speak about the company and capital markets alongside Deputy Minister of Finance, Odilbek Isakov, management of UZMK, and the regulator of Uzbekistan’s capital markets. In our opinion, of the state-owned enterprises slated for privatisation, UZMK is among the most attractive from an investment standpoint.

Uzmetkombinat roadshow kick-off

(Source: AFC Research)


Capital “B” for bureaucracy!

When operating in a developing market, and increasingly the developed world, bureaucracy in government is almost certain to be a topic of contempt. In most all countries, the government only gets bigger over time and in many developed countries a bloated civil service breeds not only inefficiency and likely corruption, but an incentive for those in the game to vote for the incumbent political party.

Well, in Uzbekistan, to quote Bob Dylan, “The Times They Are A-Changin'” for during President Mirziyoyev’s annual address to the nation on 20th December 2022, he stated that from 1st January 2023 the government will be trimming the proverbial fat. The number of government ministries will shrink to 28 from the current 61 and up to 30% of government staff will be fired with the government using the savings to establish a fair wage system among civil servants and the balance for social programs, including providing school lunches to grade school children across the country.

One of the biggest challenges for businesses in Uzbekistan since we arrived in 2018 has been the inefficiency of government. Luckily, investing in the stock market we don’t come across such issues, but by streamlining the government and increasing digitalization (a process which has been underway for several years) we hope that operating in Uzbekistan becomes more efficient and leads to a new phase of attraction for foreign investors looking to establish factories or general headquarters to gain Central Asian exposure.

On behalf of the entire team at Asia Frontier Capital, I would like to wish you and your loved ones a Happy New Year and a wonderful start to 2023!


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

Uzmetkombinat promotional video 

Uzbekistan president promises leaner government and more gas

Share of modern retail forecast to double by 2026


AFC Uzbekistan Fund Marketing Information as of the end of November 2022