Financial Shenanigans

Financial Shenanigans

Figures converted from KZT at historical period-end FX rates — see data/company.json.fx_rates for the rate table. Ratios, margins, and multiples are unitless and unchanged.

The reported financial statements look internally consistent and auditor-clean, but the surrounding governance, related-party, and disclosure record is not. A short report and an active US securities class-action lawsuit accuse the company of pre-IPO non-disclosure of Russia exposure, related-party transactions, and executive ties — none of which have been adjudicated, but all of which sit on top of a founder-controlled, ex-EY-audited, freshly-NASDAQ-listed Kazakhstan bank/super-app with reported net margins above 40 percent. The accounting itself does not look manipulated; the package around it raises the risk grade.

1. The Forensic Verdict

Risk grade: Elevated (52/100). Earnings quality and cash-flow construction look sound for a fast-growing lender, and the auditor (Deloitte LLP, Kazakhstan) has signed clean opinions on every public filing we can find. But three things stop this from being a "Watch": a still-active securities class action (Krivenok v. Kaspi.kz, C.D. Cal., filed Dec 2024) over allegedly undisclosed Russia exposure and related-party transactions; founder control of about 48 percent of the equity plus a Chairman whose other business (Magnum hypermarkets) is a disclosed Kaspi joint-venture counterparty; and an $858 million goodwill stub created on the Hepsiburada acquisition that has not yet been tested through a full impairment cycle. The single data point that would most change the grade is a clean dismissal — with prejudice — of the securities class action; the data point that would push it to High is any Kazakhstan-related US enforcement action or auditor change.

Shenanigans scorecard

2. Breeding Ground

The structural conditions favor aggressive reporting more than the reported numbers do.

Two things matter most. First, the audit committee chair Douglas Gardner spent 2002-2006 as Ernst & Young's managing partner for Russia, Kazakhstan and the CIS. CEO Lomtadze ran GCG Audit in Georgia (which became part of EY) before founding Kaspi. CFO Mosidze was a financial manager at EY Caucasus & Central Asia. Audit committee member Gutkowski has no banking background. The audit-committee chair being a competent ex-Big-4 partner is normally a good thing — here it is paired with an audit-committee CEO/CFO that came from the same firm in the same region in roughly the same era. This is not in itself disqualifying; it is the kind of network that an independent overseer would underwrite carefully. Second, the related-party network around Chairman Vyacheslav Kim is wide. Magnum (Kazakhstan's largest food retail chain) is Kim's company, and Kaspi has two material commercial arrangements with Magnum: the Magnum e-Grocery joint venture launched in 2021 with 9.99 percent held by Magnum, and the February 2023 acquisition of 51 percent of "Magnum E-commerce Kazakhstan" LLC. These are disclosed; they are not by themselves shenanigans. They do narrow the set of transactions where a forensic analyst can rely on arm's-length comfort.

Cash compensation is not the incentive vector here. The 2025 total cash compensation for the entire board and executive officers was roughly $1.3 million — small versus a $2.06 billion net income. The vector is equity: 6,062,905 ADSs are reserved in treasury for the LTIP, of which 1.32 million relate to outstanding unvested options. The CEO can reduce up to 50 percent of an LTIP participant's exercisable awards at full discretion if the participant "underperforms," which concentrates discretion in the founder-CEO.

3. Earnings Quality

Revenue is a mix of interest income, fee income, and (post-2025) Hepsiburada e-commerce gross transaction revenue. The standard income-statement quality tests do not flag manipulation, but the post-acquisition reporting needs ongoing audit.

Revenue grew 31% in FY24 and 60% in FY25; net income growth slowed to 3% in FY25 because Hepsiburada consolidation absorbed the operating leverage — expected for an organic-plus-acquired business. There is no big-bath impairment, no restructuring charge, no JV gain or "other income" line driving headline FY25 net income.

Group net margin dropped from 41% in FY24 to 27% in FY25 — entirely explained by Hepsiburada being consolidated for eleven of twelve months. The yellow flag is not the margin drop but that the Kazakhstan stand-alone margin profile is now harder to track without segment-level discipline. Management has provided separate Kazakhstan and Türkiye numbers in quarterly releases from Q1 2025 onward; the test is whether that segmentation continues at the same fidelity.

PP&E jumped 167 percent in FY25 to $1.37 billion — Hepsiburada brings fulfilment-network assets onto the balance sheet. Current assets jumped 94 percent. The pattern is consistent with consolidating a working-capital-intensive e-commerce business, not with capitalizing operating costs. Capex/depreciation cannot be computed cleanly because depreciation is not separately broken out in the provided income schedule; FY25 capex/revenue is 4.5 percent, up from 3.8 percent in FY24 — modest, not aggressive.

4. Cash Flow Quality

Treat headline operating cash flow as range-bound, not as a single year's number.

The CFO/NI ratio has bounced between 0.16 (FY21) and 2.37 (FY20) over the past five years. That dispersion is normal for a fast-growing bank because IFRS pushes changes in "loans to customers" and "amounts due to customers" into operating cash flow. In years of heavy loan growth, CFO compresses relative to net income; in years of deposit growth, CFO expands. The forensic conclusion is not that CFO is manipulated — it is that any single-year CFO figure is not interpretable on its own. Trailing-three-year CFO/NI of 0.80 and FCF/NI of 0.69 are the right anchor.

FY25 reported free cash flow of $943M turns into $-119M after netting the $1.06bn Hepsiburada cash outflow. The acquisition was funded partly out of operating cash, partly with $626M of new debt, and via a one-time dividend skip ($0 paid in FY25 vs $1.23bn in FY24) — all disclosed and routine for an acquirer. The red flag is not the financing decision but that headline FCF of $943M overstates the organic cash-generation engine by an order of magnitude.

Over FY21-FY24, cumulative dividends and buybacks of about $3.99 billion roughly matched cumulative free cash flow of about $4.44 billion — high payout, but not deficit-funded. FY25 broke the pattern: dividends were suspended, $626 million of new debt was raised, and $1.06 billion was redirected to Hepsiburada. A re-acceleration of dividends in FY26 ($850 per ADS proposed in KZT) restores the historical return profile but increases the risk that any Hepsiburada integration disappointment will eat into payouts again.

5. Metric Hygiene

The reported KPI set is internally consistent across releases; the gap is between what management discloses and what the lawsuit alleges should have been disclosed.

Operating KPIs (TPV, GMV, TFV) are well-defined, reconcile to revenue, and have not been redefined or quietly dropped across the seven quarterly releases available. The two red items in this table are both about disclosure, not metric construction. The pre-IPO Russia-exposure statement is the central allegation in the class action — Culper's report headline was "The NASDAQ-Listed Fintech Moving Money for Criminals and Kleptocrats" — and the related-party section of the lawsuit goes beyond what is in IFRS Note 23. Until those two items are tested in court or settled, the metric hygiene grade cannot be upgraded to green.

6. What to Underwrite Next

The forensic risks are concentrated in five disclosures and one structural test. None of them require deep specialist knowledge to monitor.

1. Status of Krivenok v. Kaspi.kz (C.D. Cal., No. 24-cv-10926). Dismissal with prejudice would downgrade the grade to Watch. A motion-to-dismiss denial or a discovery order that surfaces additional Russia-counterparty information would upgrade to High. Track the docket directly; do not wait for press releases.
2. 20-F Note on related parties (FY2025 and FY2026). Quantify Magnum-related transactions year-over-year, plus any new related-party counterparties. Material increases without strategic rationale are the test.
3. Türkiye segment economics. Hepsiburada's standalone profitability versus the implied purchase-price economics (≈$1.13 billion for 66.35 percent of a company that "returned to profitability" but not at Kaspi's margin level). A first goodwill impairment within 24 months would force a re-rate of the whole acquisition story.
4. Loan-loss coverage refresh. The 6.8 percent allowance/gross-loans level we can confirm is from FY22. If FY25 coverage drops without macro support — Kazakhstan unemployment, mortgage book mix, Türkiye consumer credit losses — that is a yellow flag.
5. Pre-IPO disclosure cleanup. A revised risk-factor section in the next 20-F that explicitly addresses Russia counterparty exposure (rather than denying it) would be the cleanest possible exoneration. Continued use of pre-IPO framing is itself a yellow flag.

The forensic conclusion is that this is a valuation-haircut risk, not a thesis breaker. The financial statements themselves show no clear evidence of earnings manipulation, big-bath accounting, capitalized operating costs, or fictitious revenue. Cash flow is messier than it looks at first glance but explainable once you treat Kaspi as the bank-plus-marketplace it is. The genuine exposure is disclosure quality and the related-party perimeter — both sit outside the audited numbers, both are now in active litigation, and both justify a tighter required margin of safety and a smaller position than the headline 67% ROE would otherwise support.