Selling KMG +33%

Selling all my KMG today.

Tender offer has been made for $14.00.  Slight unanticipated problem is that Kazakhstan has 20% withholding tax and to get it net of tax I need to submit an array of documents via my broker and trust that no-one along that chain messes up / decides I am liable for 20% tax.

To avoid having to deal with this bureaucracy I am simply selling up – stock has traded up to 13.5, but at the current price you are only missing 7% of upside and taking risk.  Argument could be made to wait until EGM on 22nd Jan.  Ideally I would but the deadline for accepting the tender offer and submitting documents by my broker is Jan 8th – though they keep changing it.  I am not inclined to wait for current, reasonably attractive prices to disappear before selling.

By selling now I am giving up possibility of a higher tender offer – but I dont think it’s likely.  I also am giving up risk of funds refusing offer and the price falling back.  On balance I think its time to get out – but its a marginal decision.

I have also been influenced by this FT article.

Very successful trade – in at the end of September, out start Jan 30% return.  I would have been in heavier but I quite urgently need a decent broker that can deal in this obscure stuff in an ISA…

As ever, comments appreciated.

6 thoughts on “Selling KMG +33%”

  1. I’m doing the paperwork, doesn’t seem too complicated if you settle for paying a 20% capital gains tax. Getting a lower tax rate is too much work though, and would only get it to 15% anyway.

    1. Not what the offer document says (P6)
      “Current Kazakhstan tax legislation provides that any capital gain made by a GDR Holder from the sale of GDRs to the Company represents Kazakhstan-sourced income. The Company, acting as tax agent, is required to apply withholding tax against the gains to the GDR Holders represented by the proceeds of the Tender Offer, unless certain exemptions apply.
      There are certain exemptions to the obligation on the Company to withhold Kazakhstan withholding tax, of which those most likely to apply to the Tender Offer are: (i) an exemption for any GDR Holder which is a Kazakhstan Holder; or (ii) an exemption for any GDRs listed in Kazakhstan and sold by way of an Open Trade transaction on KASE.
      A sale of GDRs by way of a tender through the Clearing Systems is treated for the purposes of Kazakhstan tax legislation as an over-the-counter transaction to which any applicable Kazakhstan withholding tax must be applied”.

      Offer document says no tax if I sell to their broker but what IB say to me differs – decided not to be greedy here…. If you/ they get it badly enough wrong they can apply 20% tax on the whole amount – not just the gain….

      1. Thanks, I just read the prospectus and you are right. WT will be applied to the Capital Gain and potentially to the whole proceeds, if no proper documents provided.

  2. Depends when you got in. As a workout, this is 6-7% less — in my case — Canadian capital gains of 15% for a merger that is likely to be accepted just based on a variant of FOMO (fear of missing out, or as Munger would say, deprival super-reaction syndrome). Seems like a most classic workout situation that deserves decent weight.

    By the way, signing up with the Kazakh broker is really a straightforward process. At least it has been for me

    1. I can see if you are larger / have more experience doing this sort of thing it might be a good opportunity.

      I’m surprised the discount to realisation value is as big as it is.

      As a smaller investor its not for me. If the Kazakh tax authorities / broker (who I have no experience with) dispute my paperwork I could be liable to 15% of proceeds – not just gains…

      I’m not entirely happy with my own decision and I very nearly held on before looking through the paperwork and deciding not to.

      A lack of confidence in my broker’s back office to get all this done correctly also plays a part…

      Judging from the share price I am not the only one thinking this or something similar…

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