Cross-Border M&A in Central Asia: How European Investors Can Navigate the Kazakh Frontier

“CDI Global takes prides in having offices in more than 30 countries across all continents. Whenever relevant or needed, we are also able to further extend our coverage and support our clients in other geographies thanks to carefully selected bespoke partners who can bring specific additional expertise with a mindset that aligns perfectly with ours. Such is the case in Central Asia and specifically Kazakhstan, for which we at CDI France are proud to cooperate with Julia Kouchnirenko-Descottes, Partner, Harbour Avocats, who shares some actionable and insightful recommendations below," - Thierry Gibert, Managing Partner of CDI France

Central Asia is no longer a peripheral consideration for European investors. Since 2022, the reconfiguration of trade flows away from Russia has elevated Kazakhstan — the region's largest economy, ninth-largest country in the world, and a top global producer of uranium, oil and base metals — to the status of a strategic frontier market. France, an early diplomatic partner of independent Kazakhstan since 1992, has placed over USD 18.7 billion of direct investment in the country over the past fifteen years through corporates such as TotalEnergies, Air Liquide, Alstom, Vicat and Saint-Gobain. With President Tokayev's renewed push to modernize the industrial base and diversify beyond hydrocarbons, mid-cap M&A opportunities are multiplying — in agribusiness, healthcare, mining, industrial services, renewable energy and digital infrastructure. Yet cross-border M&A into Kazakhstan and the broader CIS frontier requires a legal and operational playbook that differs materially from EU-on-EU deals. This article sets out six areas where European acquirers and their advisers should focus their preparation.

1. Strategic and Regulatory Landscape: Why Central Asia, Why Now

1.1 The macro case

Kazakhstan's GDP grew 4.8% in 2024, driven by manufacturing, transport and construction. The Trans-Caspian International Transport Route — bypassing Russia — has become the corridor of choice for EU-Asia freight, with cargo volumes doubling year-on-year. The Astana International Financial Centre (AIFC), a common-law enclave modelled on the DIFC in Dubai, offers English-language documentation, English judges sitting on the AIFC Court, and a dedicated arbitration centre. For mid-cap European corporates, the combination of macro growth, infrastructure modernisation and a Western-friendly legal platform creates a credible M&A pipeline that did not exist five years ago.

1.2 Strategic sectors and foreign-investment screening

Kazakhstan's 2017 Entrepreneurial Code and the subsoil use legislation reserve certain sectors for State control or grant the State a pre-emption right — subsoil rights, defence, telecom, banking and media. Any deal touching these sectors triggers approval from the relevant ministry and, where strategic mineral deposits are involved, the right of the State to acquire the asset at market price. Acquirers should map these veto rights at the term-sheet stage; failure to do so has derailed deals in the past, as illustrated by the 2007 Kashagan renegotiation, where the Government invoked subsoil prerogatives to renegotiate the consortium's economics with TotalEnergies, Eni and ExxonMobil.

1.3 Antitrust and merger control

The Kazakh Agency for Competition Protection clears transactions above modest asset and turnover thresholds (currently KZT 30 billion / EUR 60 million combined asset value, with one party exceeding KZT 3 billion). Filing is mandatory and suspensory. Crucially, the EAEU competition layer (Eurasian Economic Union) may apply when the deal has effects in two or more EAEU member states. Coordinating with the Eurasian Economic Commission in Moscow is increasingly sensitive given the sanctions regime — a point examined further in Section 3.

2. Due Diligence: Sanctions, UBOs and the Tenge

2.1 Sanctions and counterparty screening

Kazakhstan is identified by the European Commission as a high-risk transshipment hub for sanctioned goods bound for Russia. Acquirers must extend screening well beyond the target itself: subsidiaries, joint-venture partners, key suppliers, banks of record, and the ultimate customers of the target's products must all be checked against EU (Regulations 833/2014 and 269/2014, as amended), OFAC (SDN, sectoral and Russia-related lists), UK HMT and UN designations. Particular attention should be paid to dual-use goods under EU Regulation 2021/821: where the target manufactures or distributes goods capable of military diversion, the deal documentation should impose end-use certifications and rolling sanctions representations that survive closing.

2.2 Beneficial ownership and politically exposed persons

Although Kazakhstan operates a UBO (Ultimate Beneficial Owners) register, opacity remains significant in practice — corporate chains frequently transit through Cyprus, the Netherlands, the UAE or the AIFC itself. Investigative due diligence should be commissioned alongside legal diligence, with attention to PEP exposure: many mid-cap Kazakh businesses are owned by individuals with current or recent political ties. From a French acquirer's standpoint, Sapin II anti-corruption and influence peddling law and the personal criminal exposure of directors require that integrity diligence be documented and preserved.

2.3 Currency, repatriation and exchange-rate exposure

The tenge has depreciated by more than 60% against the euro over the past decade. Repatriation of dividends and disposal proceeds is permitted but subject to mandatory currency-control reporting through the National Bank of Kazakhstan. Earn-outs, deferred consideration and price-adjustment mechanisms must be denominated in EUR or USD; any tenge-denominated component should be hedged at the share-purchase agreement level. Where the target generates revenue in tenge, valuation models should isolate FX assumptions explicitly and stress-test devaluation scenarios.

2.4 Environmental, social and asset-side risks

Mining and industrial targets carry environmental legacy issues that have been largely under-regulated until recently. Kazakhstan's commitment to carbon neutrality by 2060 and the ramp-up of the new Environmental Code (2021) mean that historical remediation liabilities are increasingly being translated into administrative fines and clean-up obligations. Acquirers should commission a Phase I/II environmental audit and reflect findings in specific indemnities.

3. Deal Structuring: Vehicle, Tax and Sanctions Compliance

3.1 The acquisition vehicle

European acquirers typically use a holding vehicle in a jurisdiction with an attractive double-tax treaty with Kazakhstan. The 1998 France-Kazakhstan tax treaty caps withholding tax on dividends at 5% (for 10%+ holdings) and on interest at 10%. Comparable treaties exist with Luxembourg, the Netherlands and Cyprus, although recent OECD-driven anti-treaty-shopping developments and the Multilateral Instrument (MLI) require demonstration of substance and principal-purpose alignment. The AIFC, with its 50-year tax holiday on Centre-incorporated entities, is also worth considering as the operational holding layer.

3.2 Earn-outs, escrow and W&I insurance

W&I insurance for Kazakh targets is now offered by London-market underwriters, albeit with carve-outs for sanctions, corruption and tax. Earn-out mechanisms are common in mid-cap transactions but require carefully drafted accounting definitions: Kazakh financial statements still differ from IFRS in several respects, and audit quality is variable below the Big Four perimeter. Escrow arrangements should be held outside Kazakhstan — typically in Luxembourg, London or Paris — to avoid currency-control friction at release.

3.3 Sanctions and export-control representations

Sanctions representations should now be standard in any Central Asian SPA: no listed person in the ownership chain, no Russia-linked transactions in the look-back period, no diversion of dual-use goods, full cooperation in future audits. These representations should be backed by a specific indemnity carved out of the W&I policy and surviving for at least seven years — the typical look-back window for OFAC enforcement actions.

4. Closing and Post-Closing Integration

4.1 Conditions precedent and the regulatory choreography

A typical Kazakh closing involves five to seven regulatory clearances: antitrust (Kazakh and possibly EAEU), sectoral consents, central bank notification for non-resident shareholding, beneficial-ownership filing, and — for listed targets — KASE or AIX disclosures. The choreography is rarely linear; experienced local counsel and a critical-path tracker are indispensable.

4.2 Employee transfer and works council

Kazakh labour law (2015 Labour Code) protects employees in share deals by operation of law but does not transpose the EU Acquired Rights Directive. In asset deals, employees must consent individually to the transfer. Where the French acquirer maintains a European workforce affected by the transaction, EU information-and-consultation obligations apply in parallel. Coordinating the Kazakh and EU labour timelines is a frequent source of closing delay.

4.3 Post-Merger Integration and cultural alignment

PMI in Kazakhstan blends business norms from the Soviet legacy, Turkic traditions and a rising Anglo-Saxon corporate elite. Decision-making tends to be more hierarchical and relationship-driven than in Western European targets, while informal networks (the so-called "clan" structures) can outweigh formal governance. Acquirers should plan for a longer cultural integration runway, retain key Kazakh executives via earn-outs or phantom-equity, and avoid the temptation to parachute expatriate management in the first six months. Transition Service Agreements (TSAs) are increasingly used to bridge accounting, IT and HR systems during the first twelve to eighteen months.

5. Dispute Resolution: Designing for Enforceability

Choice of forum is the single most consequential clause in a Kazakh transaction document. Three options dominate:

5.1 The AIFC Court

Modelled on the DIFC Court in Dubai, the AIFC Court applies English common law, sits in English, and is staffed by judges seconded from England, Scotland and the Commonwealth. Judgments are enforceable in Kazakhstan directly. For deals with substantial Kazakh elements but a European investor's preference for common-law contract interpretation, the AIFC Court offers an attractive middle ground.

5.2 International arbitration

The ICC (Paris), SCC (Stockholm) and VIAC (Vienne) remain the gold standards for high-value disputes. Kazakhstan is a party to the 1958 New York Convention, ensuring that an award rendered in one of the 170+ Contracting States is enforceable through the Kazakh courts. The International Centre for Settlement of Investment Disputes (ICSID) provides an additional layer of protection for State-related deals: Kazakhstan has been a frequent respondent (Stati, Caratube, Anatolie Stati cases) and the jurisprudence is now well established.

5.3 Bilateral Investment Treaty protection

France-Kazakhstan signed a bilateral investment treaty in 1998 (in force since 2000), providing French investors with substantive protections — fair and equitable treatment, protection against expropriation, free transfer of returns — and a direct right of arbitration against the Kazakh State. Structuring the holding chain to capture BIT protection (via France, the Netherlands, the UK or Switzerland depending on the operative treaty) is a frequently overlooked optimisation.

6. The Road Ahead: A Strategic Opportunity Requiring Tailored Execution

For European mid-cap acquirers, Central Asia presents one of the few remaining frontier markets where strategic positioning is still affordable, regulatory regimes are converging with international standards, and geopolitical re-balancing creates a structural tailwind. Kazakhstan, in particular, has invested significant institutional capital in becoming the regional M&A hub — through the AIFC, the BIT network, and a steady improvement of its insolvency, competition and corporate frameworks.

Successful execution depends on combining three competencies that rarely sit in one place: French and European deal experience, sanctions and export-control fluency, and on-the-ground Kazakh legal and operational expertise. The acquirer who builds this trio early — typically through a lead European counsel coordinating a vetted network of local advisers, tax, regulatory and integration specialists — captures the upside without absorbing the legacy risks that have undermined prior deals.

Central Asia's window is open. The investors who treat it as a serious M&A destination rather than a peripheral exploration will define the next decade of European corporate presence in the region.

By Julia Kouchnirenko-Descottes, Partner, Harbour Avocats