Valuation

According to Kazakhstan Stock Exchange market, I used Consolidated Statement of Financial position and Consolidated Income Statement which was prepared by Ernst and Young Company in years 2008-2009

http://www.kase.kz/files/emitters/KMGZ/kmgzf6m6_2009_cons_e.pdf

WACC Calculation:

Weighted Average Cost of Capital the average of the costs of a company's sources of financing-debt and equity, each of which is weighted by its respective use in the given situation. By taking a weighted average, it shows how much interest the company has to pay for every marginal dollar in our situation in KZT it finances. A firm's WACC is the overall required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. Also, WACC is the appropriate discount rate to use in stock valuation.

This is the formula in calculating KMG’s WACC: WACC= Wd*Rd*(1-T) + We*Re

The first determines the cost of equity (Re) for the bank using Capital Asset Pricing Model:

Re=rf+ β(rm-rf),

Re is the cost of equity, β is beta,rm is the required return of the market, rf is the risk free rate and (Km - Krf) is the market risk premium.

Cost of Equity
Risk-free rate	6,35%
Beta
Equity risk premium	7,5%
Cost of Equity: Re=rf+b(rm-rf)	7,5%
https://docs.google.com/viewer?a=v&q=cache:VnBGnE2ipnQJ:centralasia.rencap.com/download.asp?id%3D10572+valuation+risk+free+rate+for+kazmunaigas&hl=ru&gl=kz&pid=bl&srcid=ADGEEShi_ZBAdIEfp8BLJ05Odgdpp-jG7LrV53yScgY_I5flncXT8_3rIOMM8f6QjNM7Au0n2TYvYKrP4AxqN1gL9e39sjeEjXcaaXTeAA6Bxx0NNTHxcoUcqb-1-1akd1mEz8ZSlXP_&sig=AHIEtbTBnlBI7MVRlWWAfWJl3dRuqUwMCw

I examined the cost of debt (Rd) which in this case is the yield to maturity (YTM) on the bonds. My calculations for KMG's yield to maturity based on the given data showed that Rd= 14.30%

Cost of Debt
Current Price	27.50
Maturity(2008-2015)
Coupon	8.3%
Cost of Debt: Rd: PV=275;N=8;PMT=83;FV=1000	38.32%
https://docs.google.com/viewer?a=v&q=cache:VnBGnE2ipnQJ:centralasia.rencap.com/download.asp?id%3D10572+valuation+risk+free+rate+for+kazmunaigas&hl=ru&gl=kz&pid=bl&srcid=ADGEEShi_ZBAdIEfp8BLJ05Odgdpp-jG7LrV53yScgY_I5flncXT8_3rIOMM8f6QjNM7Au0n2TYvYKrP4AxqN1gL9e39sjeEjXcaaXTeAA6Bxx0NNTHxcoUcqb-1-1akd1mEz8ZSlXP_&sig=AHIEtbTBnlBI7MVRlWWAfWJl3dRuqUwMCw

Coupon rate – 8.3% per annum. Coupon is paid annually. 8 year grace period of annual payments. KMG bank – 2008-2015.

According of KASE information target price to find market value of equity is 1,117,412,334,848.88. Min price is 12,515.95 + max price 19,361.63, then divided by 2.

Market Value of Equity
Target price: avg: (12,515.95+19,361.63)/2	15,938.79
Number of shares	70,106,472
MV of Equity	1,117,412,334,848.88
http://www.kase.kz/en/shares/show/RDGZ

According of information in 2008 Balance sheet of KMG bank

Market Value of Debt
Short-term borrowing-loans and notes payable	464,817,712
Current portion of Long-term debt
Long-term debt
MV of Debt	464,817,712
http://www.kase.kz/files/emitters/KMGZ/kmgzf6m6_2009_cons_e.pdf

Target Capital Structure
Total Market Value: V=D+E	1,117,877,152,560.88
Debt to Total Capitalization Wd	0.041%
Equity to Total Capitalization We	99.959%

Tax
Corporate tax	20,00%
Income tax	10,00%
Sales tax	12,00%
Tax	42,00%
http://www.taxrates.cc/html/kazakhstan-tax-rates.html

WACC= Re*We + Rd*(1-T)*Wd

WACC=7.51%

Finding WACC now I valuate Discounted Cash Flow

Disadvantages of IPO

There are several disadvantages to completing an initial public offering, namely:

• Significant legal, accounting and marketing costs
• Ongoing requirement to disclose financial and business information
• Meaningful time, effort and attention required of senior management
• Risk that required funding will not be raised
• Public dissemination of information which may be useful to competitors, suppliers and customers.

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