By Joanna Chung in London, FT.com site
Fast-growing companies from Kazakhstan in search of capital and an international profile are making tracks to the City of London. Furthermore, what was once a pipeline of initial public offerings predominantly from energy and mining companies has expanded to include more groups from the republic's thriving banking and industrial sectors.
Bankers say there is appetite among investors for shares in companies from oil-rich Kazakhstan. The country has one of the fastest-growing economies in central Asia with a banking system more developed than that of its neighbours, Russia and Ukraine.
The number and size of share offerings lag those from Russia. Since the beginning of 2006, Kazakh and Russian companies have raised a total of $22.4bn on London's main market, of which $1.66bn was raised by Kazakh companies.
But they have nonetheless commanded strong investor demand. For instance, at the end of last year, Halyk Savings Bank, Kazakhstan's third-biggest bank in terms of assets, raised $680m in a deal that beat even the most optimistic expectations.
"Kazakhstan is enjoying a happy combination, " says Mark Martin, managing director of equity capital markets at ING, which has worked on a number of Kazakh floats.
"It has vast mineral resources but also a strong and well-regulated and transparent market, by emerging market standards."
Alliance Bank, the largest retail lender in Kazakhstan, is expected to pursue an initial public offering in London soon, market sources say.
This month, a paper and packaging company called Kazakhstan Kagazy, which is also a property developer, announced its plans and is hoping to raise $300m from a flotation that could value the company near $1bn.
Companies from emerging markets, including Kazakhstan, tend to pursue flotations in London because it has less onerous regulatory requirements than New York and offers access to a wide pool of institutional investors.
So while the natural home for a company such as Kazakhmys, the mining group, may be Kazakhstan, it makes sense for it to establish a presence in London, where there is knowledge of the mining sector among investors and analysts and a plethora of mining stocks.
The presence of Russian companies also makes London an obvious choice for companies from neighbouring Kazakhstan.
It may make sense for companies based in Kazakhstan - which borders China as well as a number of the former Soviet republics - to list on stock exchanges such as Hong Kong or Tokyo.
"But it would look odd, " says Mr Martin. "Portfolio investors of shares in the former Soviet region and central Europe are in Europe, not east Asia. And the main thing with stock market listings is to make it as investor friendly as possible, " he says. "Taken together, there are few other options for Kazakh companies than London. "
Most emerging market companies sell their shares in London through global depositary receipts, which attract a broader range of investors than is possible locally. A secondary GDR listing instead of a primary listing of shares is the preferred path for many emerging market companies because the requirements are less onerous. For instance, a primary listing in London involves a company appointing a sponsor and complying with the UK rules as well as European Union ones.
Kazakhmys is the only company from the region to have a primary listing although another mining group, Eurasian Natural Resources Corporation, is considering a primary listing in London.
A depositary receipt represents ownership of a number of a company's shares and can be listed and traded - in a different jurisdiction - independently of the underlying stock.
This means a GDR enables investors to trade equities of companies listed in markets to which it is hard to gain access without, for instance, setting up a custodian or going through a local broker. They also appeal to investors because of the availability of widespread price information and lower transaction costs.
However, bankers say there is a limit to the potential pool of offerings by Kazakh companies, given the smaller size of the market, compared with bigger neighbours, including Russia.
As the domestic market matures and the local investor base grows, bankers expect more companies to list their shares locally.
But for the moment, they are among the most active among emerging market issuers of share offerings in the London market.
And Maksat Arip, the chief executive officer and a 50 per cent shareholder of Kagazy, for his part is confident that his company will offer investors something different. "We are participants in the real sector of the economy that has nothing to do with natural resources or the financial sector," he says.