ASTANA - Thursday, September 02, 2010 -
BTA Bank, the largest of Kazakhstan’s four financial institutions to default last year, has completed its restructuring.
The bank passed its final hurdle toward getting back on its feet Wednesday when the Special Financial Court of Almaty signed off on the deal that creditors and the Financial Supervision Agency had approved. The Financial Supervision Agency is Kazakhstan’s main banking regulator.
The restructuring will take BTA from a $796-million loss in the first half of this year to a $100 million profit next year, CEO Anvar Saidenov predicted. BTA lost a staggering $10.3 billion in 2009.
The restructuring lops 75 percent off BTA’s debt, taking it from $16.7 billion to $4.2 billion.
Creditors get $945 million in cash plus new debt securities, including $5.2 billion worth of recovery units and $2.3 billion worth of senior notes.
BTA was Kazakhstan’s biggest bank when it defaulted in April 2009, unable to repay the billions of dollars it had borrowed from overseas financial institutions. It is now the third-largest.
BTA had taken out the loans at relatively cheap interest rates, then lent it in Kazakhstan at much higher rates – a pattern that many Kazakh financial institutions followed.
When the global economic crisis hit Kazakhstan in 2008, many BTA borrowers were unable to repay their loans, making it difficult for the bank to service its international debt.
Realizing that the bank was reeling, the government took it over in February 2009, two months before it defaulted.
The Samruk-Kazyna sovereign wealth fund owns 81 percent of BTA, a stake it said it wants to sell within three years. Creditors own most of the other 19 percent. Samruk-Kazyna’s takeover of BTA actually triggered the bank’s default, industry insiders said.
The American investment company Morgan Stanley and another of the bank’s creditors used the takeover to invoke a change-of-ownership clause in their debt agreements with BTA. Under the clause, the two creditors demanded early repayment of their debt – on April 14, 2009.
Since BTA lacked the resources for early repayment, it had to default.
It later surfaced that Morgan Stanley had bought credit default swaps that would pay hundreds of millions of dollars if BTA defaulted. News of those swaps caused howls among government officials, politicians and the public in Kazakhstan, the United States and the rest of the world.
BTA’s major creditors included the Dutch bank ABN Amro, Germany’s Commerzbank, Britain’s Standard Chartered Bank, the ING financial group of the Netherlands and the American investment funds D.E Shaw and Fortis Investment Management. All were on a creditors steering committee that worked with BTA management on the restructuring.
The creditors agreed to accept cash, new debt securities and stock in exchange for writing off most of the bank’s debt. The write-offs were on domestic and international bonds, loans and export financing that BTA arranged before the financial crisis began.
Saidenov said BTA will pay $350 million in interest to creditors this year and $680 million in both 2011 and 2012.
The restructuring not only wiped out most of BTA’s debt but gave the bank more time to repay what’s left. The payback periods range from eight to 20 years.
It took 10 months of negotiations to reach a BTA restructuring deal late last year.
Saidenov said achieving it was difficult because of “the large number of parties involved.”
Samruk-Kazyna also took over Alliance Bank, Kazakhstan’s fourth-largest, when it defaulted last year.
Alliance’s restructuring in March this year slashed its debt by 60 percent from $4.5 billion to $1.8 billion. The reduction allowed the bank to vault from a $4.4 billion loss in 2009 to a $2 billion profit in the first half of this year.
Samruk-Kazyna remains Alliance’s majority shareholder but plans to sell its shares about the same time that it divests itself of BTA.
“The fund has invested substantial resources in BTA Bank and Alliance Bank,” said BTA Chairman Arman Dunayev, who is also Samruk-Kazyna’s deputy director. “Since Samruk-Kazyna is a profit-making organization, we will be waiting for markets to recover and become attractive for investors, and we will be searching for strategic partners for these banks.”
The sovereign wealth fund has acknowledged talking with Russia’s Sberbank about being the strategic investor at BTA.
In addition to BTA and Alliance, the much smaller Temirbank and Astana Finance defaulted last year. Temirbank restructured this year. Astana Finance is expected to do so before the end of 2010.