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Kyrgyzstan Sends Investors Message: Buyer Beware

It’s been another dispiriting week for foreign investors in Kyrgyzstan.

On November 25, the auction of the government’s 49 percent stake in Alfa Telecom failed when only one buyer came forward. The auction is the latest stumble for a privatization program that has done little but draw attention to the lack of investor confidence in Kyrgyzstan’s political and legal stability. 

As anticipated, investors balked at a nearly $100 million purchase that would come encumbered with heavy political baggage – the government owns Alfa shares because the company was closely tied to the son of ousted President Kurmanbek Bakiyev – and a host of pending lawsuits over Alfa’s ownership. (Alfa is the parent company of Megacom, the country's largest mobile provider.)

Another recent event demonstrates why investors may be hesitant. After months of limbo, the Iranian investors who bought 90.9 percent of FinansKreditBank in May on the open market announced that they would seek to sell their shares.

The Iranians say they have been under pressure from the Kyrgyz government from the moment they bought the bank. Supposedly concerned about potential ties to the Iranian nuclear program, Bishkek first demanded additional information about the investors and their sources of capital. 

Then in August the Kyrgyz National Bank, which had originally approved the sale, placed FinansKreditBank under strict observation, limiting its functions and essentially freezing its activities. After four months of what the investors claim were sincere efforts to fulfill the government’s demands, they have apparently decided to cut their losses.

As usual in Kyrgyzstan, dark rumors have been circulating for months around the bank and why the investors were allowed to purchase the shares in the first place.

In a article seemingly timed to the Iranian investors’ announcement, on November 25 the pro-government Vechernii Bishkek newspaper described what it claimed was a diplomatic note from the US Embassy laying out extensive ties between the investors and Iranian money laundered for the nuclear program.

In this version of the story, fault for the fiasco lies at the feet of the Kyrgyz National Bank, which failed to heed warnings about the dangers involved when it approved the purchase. Vechernii Bishkek did not say how it obtained the note and the story did not include comment from American officials.

In another version, government figures led by First Vice Prime Minister Omurbek Babanov (the dark prince of countless conspiracy theories) agreed to allow the investment after receiving suitcases full of cash.

Although such rumors are usually nothing more than “black PR,” the murkiness of the situation sends a clear signal to prospective investors in Kyrgyzstan: Buyer beware. 

Kyrgyzstan Sends Investors Message: Buyer Beware

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