The European Bank for Reconstruction and Development (EBRD) is boosting the financial and operational resilience of Kazakhstan Temir Zholy (KTZ or Kazakhstan Railways) by investing up to KZT 50 billion in a local currency bond issue to be listed on the Kazakhstan Stock Exchange (KASE), QazMonitor reports citing EBRD.

What is the investment for?

The investment will help Kazakhstan’s state-owned railway operator to restructure its balance sheet and implement a range of crisis response measures, including the reorganization of its transit freight operations, to cope with the after-effects of the pandemic and ongoing geopolitical turmoil.

This is the EBRD’s first-ever investment in a local currency bond in Kazakhstan and the first issue of a bond with a TONIA-linked coupon by a local company. The tenge overnight index average rate (TONIA) has been developed jointly by the National Bank of Kazakhstan, the EBRD, and the country’s leading financial institutions and is used as a benchmark rate for lending instruments.

Alternative to Northern Corridor

KTZ, which owns and operates a 16,000-kilometer railway network and manages more than 1,720 locomotives and 46,200 freight cars, will use the new capital to modernize key infrastructure along the Middle Corridor for rail container transit.

Until recently, up to 95% of freight traffic between China and the European Union (EU) traveled through the Northern Corridor. As international carriers are increasingly looking for alternatives to the Nothern Corridor, demand for transport through the Middle Corridor, which links Kazakhstan to Azerbaijan, Georgia, and Turkey through the Caspian Sea, has increased significantly. Its development is of primary importance to the sustainability of regional trade.

Better regional and international connectivity

EBRD Head of Kazakhstan Huseyin Ozhan said: “By investing in the local bond issue of Kazakhstan Railways, the EBRD is improving the sustainability of a major domestic company. It is also contributing to better regional and international connectivity and trade security, as the Middle Corridor offers one of the few realistic alternatives for China-Europe rail freight transportation.”

It is expected that local investors will frequently use TONIA-linked bonds as an effective hedging tool against inflation. They will also contribute to the development of the local capital market.

In 2022, the EBRD marks 30 years since Kazakhstan joined the Bank. With more than $9.6 billion invested in the country to date, this is the largest and longest-running uninterrupted banking operation of the EBRD in Central Asia.