Kazakhmys stoked controversy over its links to the dictatorial Kazakh government yesterday when the company's chairman and biggest shareholder Vladimir Kim sold an 11 per cent stake in the miner to the Astana administration. The move could lead to the Kazakh government becoming the largest single shareholder in the London-listed miner within a year.
In a statement the copper giant said that the agreement "enables Mr Kim to diversify his investment portfolio whilst retaining a significant long-term shareholding in Kazakhmys". Mr Kim has undertaken not to sell any more shares for a year, but will "make [a further 4 per cent of his holding] available to facilitate the provision of liquidity for a possible secondary listing on the Hong Kong Stock Exchange in 2011." Mr Kim made £833m from the sale.
Following yesterday's deal, Mr Kim holds 27.9 per cent of the stock, while the Kazakh administration owns 26 per cent of the shares.
Analysts jumped on the possible secondary listing, saying that any further sale by Mr Kim would likely leave the state as the single largest shareholder.
"The country now owns 26 per cent of the company and following the mooted listing in Hong Kong in 2011 could become the company's largest shareholder," said Louise Collinge, of Evolution Securities. "We are cautious about the implications of these moves." Evolution downgraded Kazakhmys's shares, from "add" to "reduce".
James McGeoch, an analyst at Credit Suisse, said that he could understand the concerns, but did not share them.
Allegations of corruption have plagued the administration of President Nursultan Nazarbayev, who has led Kazakhstan for 19 years. Three years ago Mr Nazarbayev secured a personal constitutional amendment, allowing him to stand for election as many times as he wishes.
In August, The Mercator Corporation, a US-based investment bank, admitted bribing Kazakh officials.
Global Witness, which says it exposes corruption in the natural resources industry, has specifically targeted Kazakhmys's links to the Kazakh government, saying that they believe that the group is run for the benefit of a small cabal of officials, and not shareholders.
Kazakhmys concedes that certain board members are close to the Astana Government. Mr Kim is a former member of the President's political council. Bolat Nazarbayev, the President's brother, also serves on the company's supervisory council.
Global Witness pointed out yesterday that the sale of the shares to the Astana administration comes a month after the death of Vladimir Ni, a member of the group's board and a former chief of staff to Mr Nazarbayev.
Global Witness also reported its concerns that Kazakhmys appears to be run as a tool of the Kazakh government. A spokesman for Global Witness said: "This development comes just a few weeks after the death of Vladimir Ni. It certainly raises a question about how this decision was arrived at."
John Smelt, the head of corporate communications at Kazakhmys, said: "I can assure you there is no connection whatsoever."
The pressure group also says that because the UK's "light-touch" approach to financial regulation, the Financial Services Authority insufficiently investigated the company before its 2005 IPO and that, "potentially vital information about the biographies of senior managers," was not revealed. The FSA declined to comment.
The group's shares put on 0.3 per cent, after increasing by more than 40 per cent in three months on the back of strong copper prices. The group's biggest institutional backer, Legal & General declined to comment.