Kazakhstan Chamber of Commerce in the USA

KazCham



The BTA saga 0

Posted on March 26, 2010 by KazCham

ONCE UPON A time, all six of Kazakhstan’s biggest  banks were Kazakh-owned and accounted for 86 per cent of banking assets. They stayed home-owned,  unlike most banks in central Europe, because they  borrowed to fund their headlong growth by raising  cheap equity in London and/or by borrowing lots  of money, very cheaply, from foreign banks –  $45 billion, to be precise.

By the time the fairy story ended, in August  2007, two of the ‘big six’ banks, ATF Bank and  BankCenterCredit (BCC), had already been sold, at very high multiples at the top of the market,  to Italy’s UniCredit and South Korea’s Kookmin Bank respectively. Several others, including  Kazkommertsbank (KKB), had also linked up with  foreign minority partners.

They were the lucky ones. Once Kazakh banks  became victims of the US sub-prime crisis, deep- pocketed foreign shareholders suddenly became  highly desirable and are now being actively sought by -»Alliance Bank, and above all, BTA Bank.

BTA was effectively nationalised in mid-February  when the government, in the shape of the Samruk/ Kazyna holding company, shovelled nearly $5 billion  into the banking system and took a controlling  75.1 per cent stake in BTA in return for $1.7 billion of  fresh equity.

In a conference call with BTAs investors and  creditors on 28 April, Anvar Saidenov, the former  Central Bank president who now runs BTA, explained  that Samruk had acquired the controlling stake “via a mandatory additional share issue… as a result of BTA  being in breach of liquidity and capital requirement.”BTAs ousted former president, Mukhtar Ablyazov,  didn’t see it that way. He complained that the bank  had been the victim of an egregious act of corporate  raiding, before fleeing the country ahead of the  bailiffs. He is now required to respond to accusations  of money-laundering and illegally transferring  funds to front companies. From a safe distance,  Ablyazov has started legal proceedings in an attempt  to get billions of dollars in compensation for the  bank’s former owners, although he is not formally a  shareholder in the bank himself, according to Central Bank chief, Grigori Marchenko.

Ablyazov, long viewed with suspicion by the  establishment, is a boyish-looking, hyper-active  entrepreneur, and former energy minister. He helped  finance and lead the opposition Democratic Choice  movement earlier in the decade before being jailed  for allegedly misappropriating funds. After a year in  jail he was given a presidential pardon and released,  promising to give up politics and throw his energies  into business.

By the time the global financial crisis broke two  years ago, Ablyazov and chairman Roman Solodchenko had built BTA into the country’s biggest bank. In the  process they borrowed more than $15 billion – mostly  in foreign currency – and re-lent much of the money  into property and other projects in Kazakhstan and  throughout the former Soviet Union.

While commodity prices remained high, for the  first year of the crisis, BTA, along with other heavily  indebted banks, was able to repay maturing debt and  interest by recalling maturing loans and rolling over  loans at higher rates. But when commodity prices  nose-dived in the second half of 2008, in the global  meltdown that followed the collapse of Lehman  Brothers, corporate balance sheets contracted, cash  evaporated and depositors looked for a safer home. Tenge devaluation in early February added further to  the foreign debt burden of all banks, but especially  BTA as the most indebted.

When Samruk/Kazyna took possession of their  new asset, Anvar Saidenov, the former Central Bank  president, moved in to take charge and a small army  of finance police moved in to the bank to go through  the books and computer files with a fine toothcomb.

The cultural change is dramatic – from free- wheeling, growth-orientated, entrepreneurial  whiz-bang the bank is now just ticking over in  the safe hands of a former central banker and  financial bureaucrats. Little wonder, under the circumstances, that the main priorities of the new  management are to restructure the bank’s debt as  soon as possible and find a new owner to rebuild the h bank. UBS and Goldman Sachs have been called in as financial advisers.

Their task became more difficult after the  new management was forced to default on BTAs  foreign loans in April. Morgan Stanley and another  international banks called in loans totalling $550  million, triggering what would have been an  avalanche of early repayment demands, which the  state made quite clear it was not prepared to deplete  its reserves to satisfy.

The US investment bank justified the move as  a response to changes in ownership covenants  following Samruk’s defenestration of the old regime  and downgrades by the international rating agencies.  Standard and Poors moved BTA debt to “default”  status and Fitch downgraded BTAs long-term issuer  default rating to “restricted default” as the new state  owners are continuing to pay interest on outstanding debt and repaying smaller loans, below $10 million,  as they come due.

BTA is not alone in its default. In May, Alliance  Bank requested a three-month moratorium on  debt repayments after writing down $1.1 billion  of assets linked to US Treasuries. BTA, Halyk, KKB  and other banks, meanwhile, have raised new bond  issues domestically where possible to shore up their  capital base and allow them to buy up some of their distressed bonds at a discount.

With BTA formerly scheduled to pay back  $3 billion this year out of $9 billion of foreign loans  still outstanding, the new owners have taken a  tougher line with creditors, pointing out that those  granting foreign loans and credits to Kazakh and  other emerging market banks in the boom years  were all professionals who should have been aware  of the risks.

At the annual Fitch rating conference in April,  Elena Bakhmutova, chairperson of the Kazakh Agency for Regulation and Supervision of Financial Markets  and Financial Organisations (KFSE), said: “We will use all feasible suggestions – redemption of discounts,  substitution of new debt securities and so on.” But,  she underlined “under no circumstances will state  guarantees be used.” It is on this basis that BTAs  new owners are negotiating debt-restructuring terms h with creditors to clear the ground for substantive  negotiations with potential new owners.

The leading suitor is Russia’s giant Sberbank, the  former Soviet savings bank. Ownership of BTA would  give Moscow a powerful new role in the Kazakh  economy. Russia, however, is also suffering from the  global economic crisis and Sberbank is having its own  problems with mounting bad debts. However, the  Russian state is preparing a substantial recapitalisation of Sberbank, both to strengthen it domestically and  provide it with the financial firepower to take over BTA if terms can be agreed. Whether any other suitors  emerge depends largely on the evolution of the  banking crisis elsewhere in the world.

Looking ahead, the chance to buy what was  Kazakhstan’s biggest bank, with subsidiaries  throughout Central Asia, is probably an unrepeatable opportunity. But deep pockets and strong nerves are  called for, and both are currently in short supply.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 82-83.

Foreign banks 0

Posted on March 22, 2010 by KazCham

WITH THE BENEFIT of hindsight, the timing of the  first major foray by foreign banks into the domestic  banking market could hardly have been worse. But  from a long-term perspective, the decision of Italy’s  UniCredit and South Korea’s Kookmin Bank to  pay $2.3 billion and $1 billion respectively for ATF  and BankCentreCredit (BCC) just before the global  financial crisis erupted in the summer of 2007 could h well turn out to be prescient once Kazakhstan and Central Asia return to the path of rapid growth.

For UniCredit, the move into Central Asia’s richest h and most dynamic economy was an extension of its  previous foray into Central Europe as the acquisitive  Italian bank looked to diversify beyond slow-growing western European markets. For Kookmin, expansion  into resource-rich Kazakhstan reflected both  expectations of faster growth than Korea itself and  a chance to position itself for an expected influx of  South Korean investment in energy and commodity projects – including nuclear. In May 2009, Kookmin’s  chairman was a prominent member of a South Korean business delegation which earmarked projects worth $5 billion for investment by Korean companies  and banks.

“We strongly believe that a strategic partnership  will bring us competitive advantages and make it  easier to deal with any financial wobbles,” says Timur  Ishmuratov, managing director of BCC’s international  department. “Kookmin, like our bank, has a focus  on the retail and SME [small- and medium-sized  enterprises] market. It offers some very good products,  based on sophisticated IT infrastructure, which could  potentially be very good for our clients, too.”

Kazakh banks grew by focusing on corporate  finance and the construction sector. In both cases,  personal contacts were often key to business. While  local banks were active in the corporate market, their  understanding and penetration of the retail market,  especially mortgage lending, was low. Just as they  were developing expertise in these areas, retail and  mortgage lending became the first casualties of the  sub-prime crisis.

Some foreign banks spotted the opportunity to  expand, while local banks pulled back to focus on  repaying debts. HSBC, for example, one of several  foreign banks working in Kazakhastan for more  than a decade, recently decided to open several  new branches and make an additional $100 million  available for mortgage finances

Before the entry of UniCredit and Kookmin into  mainstream banking, most foreign banks, including Citibank and ABN-Ambro, concentrated on servicing the Kazakh subsidiaries of international companies  and expats and facilitating foreign borrowing for  Kazakh banks and companies. ABN was acquired  by Royal Bank of Scotland and its former Kazakh  subsidiary is now looking for a new owner following the virtual nationalisation of RBS itself in the UK  banking meltdown.

Before the global crisis brought banking back  to Earth, dozens of foreign banks were seeking to  get a foothold in the market by buying a Kazakh  bank. But prices were sky high and several potential  foreign buyers, such as Austria’s Raiffeisen, which  first sought to buy BTA several years ago, were unable to find suitable acquisition targets at an acceptable  price. “We observed the market but the prices did  not reflect the environment and potential risks, so  we decided to start from scratch,” a bank spokesman  said. The alternative plan to start a greenfleld bank is  currently on hold.

Now may be a good time for potential buyers  to look again, however. While the government is  focused on finding a new foreign owner for BTA, new  regulations setting a tenge 5 billion ($3.5 million)  minimum capital requirement for Kazakh banks  come into force in July, putting pressure on smaller  banks to consolidate or put themselves up for sale.  International Bank of Alma ty, with a capital of just  tenge 1.5 billion, was recently taken over, for example,  and is now being re-branded as Home Credit.

Ironically, just as Kazakh banks have become open  to takeover and more attractively priced, most foreign banks have drastically scaled back their expansion  plans. “Without the international crisis I would say  that we could expect more investment in Kazakhstan, h because prices are now optimal,” says Alexander  Picker, the Austrian president of ATF Bank. “But,  while any bank not looking to expand in Central and  Eastern Europe used to get a bad mark from analysts,  now it’s the opposite. I don’t know how many banks  will be brave enough to see the potential and act. It  depends very much on the bravery and anti-cyclical  ideas of boardrooms – many of which are in survival  mode at present.”

Several investment banks, including JP Morgan,  which has an important advisory role with Kazakhmys h and other big corporates, and Deutsche Bank, have  recently set up representative offices in Almaty,  to show the flag and be ready for more ambitious  moves, when the time is right. There is currently high  demand for advisory services – with UBS and Goldman h Sachs, for example, recently taken on as advisers to the government on settling the future of BTA.

Russian banks are also stepping up their presence. Sberbank, currently eyeing up BTA, leads the pack  while VTB, Russia’s former foreign trade bank, has  pared down its expansion plans for the CIS generally to concentrate on what it sees as the most attractive  markets – Kazakhstan and Azerbaijani

On the investment banking side, Russia’s Troika  followed Renaissance Capital into Kazakhstan  last year through the acquisition of local asset  management house Almex, and there is also  interest from further afield. Israel’s Bank Hapoalim,  for example, completed its acquisition of Demir Kazakhstan Bank (since re-branded Bank Pozitiv) in  November 2007, and Bank of Tokyo Mitsubishi is due -to set up a representative office in early 2009, with  the initial aim of serving Japanese companies.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 84-86.



↑ Top