Kazakhstan Chamber of Commerce in the USA

KazCham



Kazakhstan first in, first out 0

Posted on August 30, 2010 by KazCham

Business New Europe, by Clare Nuttall and Ben Aris

Predictions that Kazakhstan would be first in, first out of the crisis have proved to be not far from the truth. The rise in commodity prices over the last year has boosted the natural resources sector, which has in turn dragged the rest of the economy, including the banking sector, along with it. Yet despite lessons learned from the crisis, many banks still have a lot of pre-crisis issues to deal with.

Kazakhstan has seen GDP growth of 8.3% in the first half of this year, according to official data, indicating a quick return to the heady days of the mid-noughties when growth averaged just under 10% a year. Even taking Visor Capital’s more modest forecast of just 3% growth in 2010, Kazakhstan is still outperforming most western economies, driven largely by healthy prices for oil and metals. As a result, optimism has returned to the economy as a whole. “Oil prices will determine the speed of Kazakhstan’s recovery,” says Michael Eggleton, chairman of Eurasian Bank. “At $60 per barrel, we will have to wait two years or more. At $75 upwards, everything will be accelerated.”

Healthy commodity prices are having a trickle-down effect to other parts of the economy, starting with companies connected to the natural resources sector. “Now that commodities prices have recovered, sectors linked to oil and metals are recovering in turn, which is being translated into income for SMEs [small and medium-sized enterprises] and individuals. The banking sector will capitalise on that,” says Anvar Saidenov, chairman of BTA Bank.

Yerzhan Shaikenov, chairman of Temirbank, forecasts that investors will return to Kazakhstan post-crisis with the same enthusiasm that they piled back into Russia after the 1998 crisis. “Kazakhstan has oil, minerals and wheat. The political situation is stable, and we expect the economic situation to rebound very quickly. Nobody should leave Kazakhstan out of their calculations,” Shaikenov tells bne.

However, he agrees that the recovery will be from the top down, only after time bringing benefits to small businesses and consumers. “When the corporates see their business increase, then SMEs who work with them will grow, and increase the salaries they pay, which will then increase retail spending,” he says.

At present, the companies in best shape are those working with major corporates especially in the oil sector, or on the “Roadmap 2020” and other government programmes.

Not so bad loans

The banking sector’s recovery might lag other parts of the economy, but the picture here is also looking brighter. The conclusion of the restructuring of BTA, Alliance Bank and Temirbank also sends out a strongly positive message to the market about the sector’s resilience and future stability. The restructured banks, along with others in the sector, still have to work through their overdue and non-performing loan (NPL) portfolios, but overall Kazakhstan’s banks are getting down to business.

The latest data from Kazakhstan’s financial regulator, the AFN, showed a significant fall in loans with overdue payments, NPLs and provisioning ratios, although Visor Capital points out in a research note that this seeming improvement was largely due to technical factors, in particular the loan write-offs at BTA and Alliance.

Since the collapse of the real estate bubble in mid-2007, and the government intervention into the “Big Four” banks 18 months later, there had naturally been some major changes in the sector. Among the largest banks, Halyk and BankCenterCredit in particular are performing well. Smaller banks have also managed to win new clients. Unencumbered with the debt burden of its rivals, Eurasian Bank, for example, has issued $600m in new loans since January 2010.

Following an outflow of deposits in early 2009, BTA, Alliance and Temir have since managed to win back a lot of customers. According to Maxat Kabashev, chairman of Alliance Bank, the speed of recovery in the Kazakh banking sector was “unprecedented”. “Even last year, the system was still stable and operational. There will be some changes on the regulatory side in the next couple of years, but overall the system is working and the population wasn’t hit by the banking sector’s problems,” Kabashev tells bne.

However, Eurasian Bank’s Eggleton warns of continued problems within the sector. “The crisis is nowhere near being over,” he says. “One symptom of this is the ratio of accrued interest to equity on banks’ balance sheets, representing uncollected earnings and a large overhang in the real estate sector.”

In the build-up to the crisis, he points out, “People stopped paying attention to fundamentals. Banks need to live within their means, offer better service, reduce expenses and overall learn how to be a low-cost provider. In short, to act like normal institutions.”

Bankers generally agree that some lessons have been learned from the crisis. Not only have the government, the National Bank and the financial regulator been working to ensure there is not another crisis, banks are also adopting a more cautious approach. Gone are the days when loans were handed out to any punter with a real estate plan. While being more cautious on the lending side, several banks have said they are building up their non-interest income, streamlining their operations, investing into better IT systems and – especially – into consumer service. “Service is sexy,” Temir’s Shaikenov sums it up.

Legacy issues

But while bankers say the lessons have been learned, there are some signs that the old pre-crisis problems with the Kazakh economy remain. The biggest issue for the banks at present is NPLs. In addition to the burden on banks’ balance sheets, the continuing indebtedness of many Kazakh companies means that potential clients, running otherwise healthy companies, are still bogged down with debt.

Several of the banks complain of too much liquidity and too few successful companies to lend it to. In effect, they have been caught between their own desire to be more cautious backed up with stricter regulation from the AFN, and government pressure to start pumping more money into the economy. This has been a particular problem for Halyk Bank, although the sovereign wealth fund Samruk-Kazyna is expected to withdraw its deposits, made through the anti-crisis programme, in the near future, which will go some way towards solving the problem. Eggleton says that too much liquidity is also Eurasian’s biggest problem. “The money in deposits is overflowing, and this is the biggest drain on our earnings. We are expending our credit portfolio, but this is slower than we would like, as it is not easy to find good creditors,” he says.

It was a similar situation in the run-up to the crisis when the absence of growing companies to lend to caused banks to turn to the real estate sector, with disastrous results. The of the lack of alternative instruments in Kazakhstan encouraged people to invest their money into real estate. “There were three drivers behind the real estate bubble: greed, a herd mentality and the sense of endless optimism,” says Kabashev. “This may have been the first crisis in Kazakhstan, but I don’t think it will be the last. We don’t yet have another bubble, but the banking sector has a problem with over-liquidity. We have also seen many companies that have recently recovered from the crisis, where the management is already thinking about real estate investment again. It’s very important that the regulator puts out some red flags to moderate investment in real estate.”

While the energy sector is growing, there are limited opportunities for banks to lend to companies within the sector, although they are keen to lend to sub-contractors of the oil and gas industry. “We need to find ways of developing businesses in Kazakhstan outside the energy sector,” says Kabashev. “For us, the government’s diversification programme is interesting. We will be happy to credit stable clients with understandable business models who are trying to raise money to set up something new.”

SOURCE:  Embassy of the Republic of Kazakhstan to the United States of America, No 24 August 26, 2010

Interview with Grigory Marchenko, the head of the National Bank 0

Posted on April 06, 2010 by KazCham

The crisis came down to nothing or we just got used to live in its terms, taking it as an inescapable reality? The economy is stuck at the notorious bifurcation point and what to expect now: an increase or a new wave of setback? These issues are still hotly debated in society. Discarding the emotions and looking at the situation on the basis of the indicators of bygone years, the head of the National Bank, Grigory Marchenko, offers his view.

– To remind you the key results of the economic growth of Kazakhstan according to official sources in 2009: economic growth was 1,1%, industrial growth – 1,7%. While the predictions at the start of the last year were very pessimistic. Today, experts agree that a positive result was achieved by taking proper anticrisis measures in many ways. The effectiveness of the Government, the National Bank and AFS, summing up the very difficult year, were voiced by the Head of the State in his speech: “The world financial and economic crisis affected the pace of economic growth but did not stop our development. Past economic potential provided us with stability in difficult crisis battles for three years. We have defended the country’s financial system and rescued banks. We were in a “breakout group” of countries with positive growth rates. Gross international reserves and assets of the National Fund already exceeded $ 50 billion and has increased over the past ten years for more than 25 times. It is important to note that we spent part of the funds last year, but yet today the fund is bigger than in December of last year.” Today’s priority is to prepare the economy for the post-crisis development. So, are we done with the page addressed to the crisis and its emotional perception?

– There are lee emotions now and you can safely talk about it, because accusations,  made and not made, in fact, have accumulated a lot, said the head of the National Bank. – The fact that they are mostly emotions, economically unfounded or financially illiterate, is obvious. In particular, the question: why did we have the devaluation? Even today there is still some views that it could not have been done. But this is  misleading.

– Gregoriy Aleksandrovich, to be honest, some measures, particularly February devaluation, seemed very hard, painful, ill-founded a year ago.

– Shall we recall what happened before? Prices for raw materials, which is our main export item and an essential part of the economy, fell two or three times. In autumn 2008 the country’s neighbors  devalued the currency: Russia – 50%, Ukraine – almost 60%. In January 2009, our industrial production fell by 18% in a month. This reduction was for those industries that competed with cheap imports of Russia or Ukrainian (more than two-thirds of them). All that we had already passed in 1998-1999! We also had no internal reasons for the devaluation. But there was a default in Russia. There was an abrupt devaluation, and all of Russian, Ukrainian, Belarusian goods fell sharply in price in dollar terms and poured into our market. They were much cheaper than domestic goods, which costs could not compete with them. As a result, our enterprises had problems: first, they began to go to work in one shift, then began to send people to unpaid leave …
Many financiers saw the devaluation as the only exit in January and February 1999. Although, personally, I was not its advocate. At that time I was a member of the working group, and we were opposing devaluation, believing that we could solve those problems by methods of tax and customs policy of the state. It did not happen. And the National Bank introduced a freely floating exchange rate in April 1999.
In January 2009, there were similar factors and other circumstances. For example, during one month the net purchase of US dollars was amounted to two billion dollars in exchange offices! For our system is an absolute record.
In addition, during the same month the flow of deposits in tenge currency to foreign currency was 3,8 billion dollars. Thus, everybody understood what was happening and began a massive withdrawal into dollars. These factors clearly indicated that the devaluation was absolutely inevitable. The question was only how to do it. But that was what exactly I had to do in a week after taking the office; I did not come up with a scheme. By this decision, I repeat, we summed up the real situation.

– Was there an alternative to implement schemes, for example, the gradual devaluation, as in neighboring Russia?

– The decline in industrial production, the massive buying of dollars and flow of tenge deposits into foreign currency clearly said that the devaluation had to be done before and that we were already late. From the standpoint of economic theory it should have been carried out in October, when commodity prices fell. That happened, for example, in Australia, Canada, Norway. These countries, like Kazakhstan, are commodity exporters. There, the exchange rate in just a few weeks fell to 26% in Australia, at 28% in Canada and 40% in Norway. There was also a second option: to devalue along with Russia in mid-November. Neither the first, nor the second option had been made. Therefore, the only way out was to conduct a one-stage devaluation in February 2009.

– It is believed, that as a result  investors, individuals, who kept their savings in tenge, became the most aggrieved party…

– According to the National Bank, Kazakhstan depositor shifted to the foreign currency deposits 20% savings in four months (November 2008 – February 2009), and in Russia, despite the gradual devaluation – 18%. That is, our people had shifted more money: all who wanted to protect savings which was done before the devaluation. In that case we had no leaks of deposits. And it was in Russia: 300 billion left the banking system, but later returned. I also recall that during the last decade the National Bank has always insisted that you should not keep all your savings in one basket. It is necessary to divide the savings in the proportion of 50 to 50. And then the currency fluctuations between them are not scary. Investors who adhere to this rule were not affected by the devaluation.
If we compare the scheme of the devaluation, let’s judge their performance. In Kazakhstan GDP grew, albeit a little bit; in Russia it fell for 7,9%. Inflation in the neighboring countries was 8,8% in 2009. In Kazakhstan – 6,2%. This one and a half times lower compared to 2008 (9.5%). Although, I remind you that some of the most pessimistic “experts” promised us inflation at 25%. The forecasts of the same “experts” on the second round of devaluation were not justified as well. They frighten people that the dollar would cost 180 tenge. It’s possible even now to hear such predictions, but if the “experts” regularly mistaken before, then why do people believe them now?
I think the important lesson of the last year is that the National Bank, publicly designating its policy, was adhered to it: we did all that we promised. The National Bank marked the corridor, and it passed. And the corridor was even narrower in reality. We promised that there would be more inflation but it did not let that happen. We said that there would be a small growth in GDP, and it was so. However, even more than we planned. We have done everything correctly, and all our predictions were confirmed.
I think the situation with international reserves (gold reserves) of Kazakhstan is fully restored: the total gold and foreign assets (GFA) of the country stand at 52.7 billion dollars now. But it’s more than before the crisis, despite the fact that we spent 10 billion dollars from the national fund for the anti-crisis measures.

– It is common knowledge that you are not a fan of analysts and experts. However, the National Bank uses forecasting and planning. What is, in your opinion, permissible prediction error?

– We have no, unfortunately, serious analysts or an authoritative analytical community. However, many foreign analysts do not differ in their validity and accuracy of forecasts as well. For example, they predicted the deficit of current account balance at minus-six – eight per cent of GDP in 2008 for us, but it was actually plus five percent! Error in 12 billion dollars! However, the same experts come again and give forecasts for Kazakhstan in 2010. But if the experts do not understand the economy, do not understand its significant difference from the economies of Europe or Russia, they should not give forecasts, or give them, but cautiously, with these caveats in mind.
I, personally, and the National Bank, would gladly welcome a serious analytical community, but there are just a few good analysts. I can name one of them – Jonathan Schiffer, the vice president of Moody’s, who is responsible for Kazakhstan since 1996. Before he was a professor at the Columbia University and worked on the Soviet economy. There are just a few people who understand the nature, essence, the origins of the national economy, its specificity and the mentality of the population. Everything matters in the analysis, even, for example, the notion of “sedentary” or “nomads”. And who, for example, knows in Europe what is a nomadic lifestyle and the customs and traditions that it generates?

– For example, the Roma …

– But they do not work as analysts! But if to talk seriously, the National Bank is constantly analyzing the situation and makes predictions. It prepares and not guesses. But even in serious prognosis some errors are allowed. So, we gave the forecast for GDP growth of 0,3%, but it turned out – 1,1%. The volume of GDP at current prices, according to operative data of the Statistics Agency, reached 15.9 trillion in 2009. Let me remind you, some analysts predicted the fall of the main indicators, but in practice it was an increase. That is, first, the trend was identified incorrectly. This is a principle mistake. Secondly, there is an error of calculation – not even for a few percents, but in times. Therefore, the National Bank indicates the corridor in forecasts. And if the process goes in limits of this corridor, the exact approach is correct.

– Grigory Aleksandrovich, I remember well your interviews with our newspaper three-four years ago, when you warned about the mortgage bubble and would predict that it would burst. It happened. Many mortgage based businesses were in a difficult situation. What to do now?

– They are all adults, and if they assume such risks in the market economy, they should be responsible. And I do not see other ways but to negotiate with your bank, explain what the essence of problems is and how the debt can be restructured. There are people who really were in a difficult situation because of the crisis circumstances among the borrowers. But many of them wanted to do business on the growth of prices in the real estate market. That is another story – this is a market risk rather than social risk. In addition, we estimate that one third of borrowers could not service their loans, even if there was no crisis and there would be no devaluation. And there are many lessons to be learned for everybody, because some borrowers used dishonest tricks in efforts to confirm their ability to pay. For example, they provide banks with non-existent income statements.

– To sum up: how does the National Bank evaluate the outcome of the devaluation, does it achieve its goals?

– The results clearly show that our decision was necessary and correct. One-stage devaluation immediately reduced the pressure on the national currency and devaluation expectations, increased the competitiveness of Kazakhstani goods by reducing their costs, improved the balance of payments, and maintained gold reserves of the National Bank and the country. In addition, despite the devaluation, the total amount of residents’ deposits in the banking system for the year increased by 19.7% to $ 6,473 billion tenge. Moreover, individual deposits grew by 28.5%, exceeding 1.8 trillion tenge.

– Your term “asymmetric apron” gave an incentive for new forecasts. In particular, it was about a more pronounced correlation of tenge exchange rate with the rate of the ruble, which includes the establishment of the Customs Union. Are these assumptions reasonable?

– In principle, the establishment of the Customs Union should not have any pressure on tenge exchange rate in relation to Russia’s ruble as well as it does not require an adjustment in the monetary policy of the National Bank. However, one of the potential risks involved with the creation of the Customs Union is a risk of rising inflation. However, if implemented, the National Bank has the necessary tools to minimize it.

– The head of the state demanded banks to cut off from overtly or covertly affiliated entities,  to ensure that they are engaged exclusively in banking activities and that their activity should be very transparent. What measures are supposed to take?

– First, it is necessary to tighten control over the ongoing intra-group transactions and prudential supervision of banking conglomerates. Secondly, it’s necessary to improve measures on transparency of the ownership structure of financial institutions and affiliated organizations. Today, there is a working group, based on the AFS, is being established to develop a bill which will ensure the transparency of banks and their exclusive affiliation with other entities. It will also include representatives of the National Bank of Kazakhstan.

– Evaluating the outcomes of anti-crisis program in 2009, do you consider it necessary to continue the state support for the banking sector?

– The main achievement of bygone years that the banking system of Kazakhstan is relatively successfully coped with the negative impact of the second wave of the crisis. Problems of individual large banks do not have the problems of the whole system, and they successfully complete the restructuring process. In general, a package of anti-crisis measures helped to overcome some of the most dangerous consequences of the crisis. In particular, to overcome the shortage of credit on the most important sectors of the economy and avoid a collapse as a result of underfunding.
If we talk about stabilizing activities in the current year, I think, success will depend on the concerted action of the Government, AFS and the National   Bank. We have already identified the main directions of work. First, to support exchange rate stability of tenge and the level of liquidity of the money market.
This is the main task of the National Bank. Secondly, it is necessary to accelerate the healing process of bank balances and to clean their low-quality assets.
Thirdly, there is a need to develop a set of measures that will stimulate the credit activity of banks in the post-crisis phase. Fourthly, it is necessary to make the transition to a countercyclical management and improved risk management systems in financial institutions. Finally, fifthly, there is a need to develop a set of measures to reduce the level of economic imbalances and systemic risks.
I think that, it is not worth to cease the direct support of the banking sector completely in 2010 because the current state of the banking sector is largely dependent on state support, which allows overcoming the shortage of funding banks. However, there should be a gradual reduction in state aid and stimulus to the process of finding new sources of funding.

The interview is taken by Alevtina DON

SOURCE: http://www.zakon.kz/165594-grigorijj-marchenko-my-sdelali-vse.html

Gazprom, KazMunayGas to explore Imashevskoye condensate field – draft agreement 0

Posted on March 31, 2010 by KazCham

Moscow. March 30. Interfax – Russia and Kazakhstan have drafted an intergovernmental agreement covering joint geological study and exploration of the Imashevskoye gas condensate field, which straddles the two countries’ border.

Prime Minister Vladimir Putin signed the instruction approving the draft agreement on March 25.

Once the reserves have been calculated and registered, and the decision to proceed with development has been made, a new agreement will be drafted covering the terms for developing the field.

The document designates Gazprom and Kazakh national oil and gas company KazMunayGas (KMG) as the authorized organizations for work at the field. They will share the revenue from joint operations 50-50. The authorized organizations will jointly appoint the operator.

The authorized bodies are the Natural Resources and Ecology Ministry, Rosnedra, Rosprirodnadzor and Rostekhnadzor on the Russian side and the Energy Ministry on the Kazakh side. They will form a joint coordinating committee with three representatives from each country. The Russian delegation to the committee will be headed by the Natural Resources and Ecology Ministry. The committee will meet at least once a year.

The sides should issue the relevant license to the authorized license holder no more than 100 days from the moment the agreement enters force.

Gazprom and KMG will prepare the program for geological study of the field. Geological information on the field will be presented to the national geological information agencies on confidential terms.

The Imashevskoye field is located east northeast of Astrakhan in Russia and southwest of Atyrau in Kazakhstan. Explored gas reserves exceed 100 billion cubic meters with a sulfur content of 15%-17%.

The Natural Resources and Ecology Ministry will sign the agreement for Russia.

SOURCE: http://www.interfax.kz/?lang=eng&int_id=10&news_id=3376

EBRD to lend $50 million to Kazakh railways operator 0

Posted on March 31, 2010 by KazCham

“The EBRD loan will support Kaztemirtrans’ investment program and will finance the acquisition of 1,000 new freight wagons, helping the company to improve its efficiency and reduce maintenance costs. The project is supported by grant financing from the Bank’s Shareholder Fund to help KTZ strengthen its corporate governance,” EBRD said in a statement.

SOURCE: http://silkroadintelligencer.com/2010/03/31/ebrd-to-lend-50-million-to-kazakh-railways-operator/

Alliance Bank completed debt restructuring 0

Posted on March 30, 2010 by KazCham

LONDON, Mar 30 – IA News-Kazakhstan. Alliance Bank has completed the restructuring of debt declared the press office of the bank.

“Alliance Bank is pleased to announce the completion of all planned activities on restructuring the debt of the bank”, was stated in Tuesday press release of the bank.

According to the press release, the National Welfare Fund “Samruk Kazyna” produced capital increase of JSC Alliance Bank for 129 billion tenge by purchasing newly issued common shares of the bank for $ 24 billion tenge and of conversion rights to the bonds of the bank’s preferred shares worth 105 billion tenge.

Under the restructuring plan, all financial obligations of the bank was restructured and canceled in exchange for money, new bonds and equities.

As a result of debt restructuring and capital increase, the bank’s additional capitalization is 547.9 billion tenge, where its regulatory net worth is 50 billion tenge, which corresponds to the prudential requirements.

The volume of debt as the result of the restructuring was reduced from approximately 4.5 billion (including accrued interest) up to 1,08 billion dollars, including: $ 850 million – the senior debt in eurobonds, 85 million – a real trade finance, 145 million – subordinated 20-year bonds.

As a result, 67% of the common shares of the bank are at FNB “SamrukKazyna”, 33% – from creditors, 67% of preferred shares at FNB “SamrukKazyna”, 33% – from creditors.

As noted in the announcement of the bank, 33% of its shares are distributed among more than 2 thousands of minority shareholders, none of which has no share of more than 3% of the shares.

Loan term lengthened to 7-20 years, with maintenance of principal will commence no earlier than 4 years.

SOURCE: http://www.zakon.kz/167578-aljans-bank-zajavljaet-o-zavershenii.html

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.

New focus on small and medium-sized enterprises 0

Posted on March 18, 2010 by KazCham

SAMRUK, THE POWERFUL state holding company  which controls the ‘commanding heights’ of the  Kazakh economy, from pipelines and power lines  to railways, telecoms and oil companies, also  sponsors KazNex, an export promotion agency set  up specifically at President Nazarbayev’s request to  encourage small and medium-sized enterprises (SMEs) to raise quality and compete in export markets.

The government is keen to encourage small  companies to help diversify the economy and reduce  reliance on the extractive industries. SMEs currently  account for well under 20 per cent of GDP and  limited knowledge and penetration of export markets is one of their biggest weaknesses.

“Our vision is to become a driving force for  building support for exports. We already export  raw materials, and we want to develop exports  with higher value added,” says the KazNex agency’s  dynamic deputy chairwoman, Saule Akhmetova.  “We started with a study of best practice in other  countries, especially South Korea, Singapore,  Australia and Malaysia where growth was export led,” Akhmetova says.

“The problem in Kazakhstan is very low  awareness of the importance of exports on the  part of government, society and business. As more  international companies, including multinational  corporations such as Procter & Gamble, enter the  market, local businesses have to raise their game and focus on quality and marketing to compete effectively on both domestic and export markets,” she adds.

One company that addressed this issue was  Bekker & Co, a Kazakh-German joint venture in the  food processing sector. Bekker’s general director,  Ivan Kravchenko, says that from the moment  of independence in 1991 he realised that local businesses would not be able to compete with foreign imports. He went to the head of the German food  company, Bekker GmbH, who agreed to create a joints venture, which almost two decades later employs 770 people with an annual turnover of ?35 million.  Every 24 hours, Bekker produces nine tonnes  of sausages and 1.5 tonnes of bread and bakery  products, as well as traditional foods such as Russian pelmeni and Kazakh manti (dumplings) – always with h the emphasis on high-quality ingredients and  hand preparation.

“We employ lots of people for our relatively small  output. Most is prepared by hand, which we think is a major contributor to quality – we want our products  to be the same quality as home-cooked foods,”  says Kravchenko.

“Quality begins with raw materials in the food  industry. If you buy poor meat, no amount of effort  will improve it. Therefore we work with the best  suppliers. We buy our meat in Kazakhstan but other  products are imported,” he adds.

Almaty and the surrounding area is the main  market, but Kravchenko says the company wants to  export to the EU. “We have a large territory and a  relatively small population so we can feed ourselves  and have enough left over to sell abroad without  heavy use of chemical fertilisers. If we produce  ecologically clean products, we can sell them anywhere,” he says.

Ms Akhmetova of KazNex believes there is very  good potential for companies in the food processing,  textiles, chemicals, pharmaceuticals and paper  products sectors to boost exports but admits that  the crisis has slowed things down. “Companies  have limited access to funds, and some have even  suspended their activities temporarily,” she says.

One successful exporter is Textiline, which  produces a line of sportswear for Swiss clothing  manufacturer Assos at its state-of-the-art factory  in Talgar near Almaty. The company is one of a  new breed of Kazakh businesses where focus on  quality makes it possible to compete effectively with -international firms both at home and abroad.

Producing workwear for blue chip customers  such as TengizChevroil, KazMunaiGaz and KazZinc  accounts for around 65 per cent of its business, but Textiline also provides children’s clothes for the  domestic market and niche projects such as  making costumes and fabrics for the epic Kazakh  film, Nomad. According to sales and marketing director Inna  Apenko, investing in technology and staff training  was the only way Textiline could compete with low  cost exports from China – a perennial problem for  Kazakh businesses. High labour and operating costs  mean it costs five times more to produce a simple  t-shirt in Kazakhstan than in China or Turkey. “A  cheap labour force is a big competitive advantage for clothes manufacturers, but unfortunately, we don’t  have this. Unlike Vietnam or Indonesia, we also have  a shortage of specialists in this field so we had to set  up special courses,” Apenko explains.

“Our advantage over China is in technology  and intellectual property,” she adds. “When Assos  selected Textiline, the company said it needed to  be confident of quality production, and we could  guarantee this. We employ a team of specialists in  design, engineering and technology, whereas in  Chinese companies this work is typically carried out  in Europe.” Today, Textiline is the largest clothes  manufacturer in Kazakhstan, with six factories,  employing 1,200 people.

In recognition of the difficulties of raising  funds for investment, or even working capital,  the government has set up a new fund, called  Damu, which works with banks to finance smaller  companies. It has 117 billion tenge to lend at a preferential 12.5 per cent interest rate and a further  3 billion tenge specifically to help small companies  take part in state tenders or produce goods for export. The EBRD has also been an active provider of finance  to Kazakh banks for on-lending to SME customers,  and ATF Bank President Alexander Picker says that  the UniCredit-owned bank is using its international  experience to develop small business lending in  Kazakhstan, partly thanks to EBRD fundings

Bekker and Textiline have both had to adapt to  the economic slowdown, like most other Kazakh  companies. “Before the crisis, demand exceeded  supply, so we don’t plan to reduce output or cut  staff. But we have paid more attention to marketing  recently,” says Kravchenko.  Ms Apenko agrees on the importance of  enthusiatically promoting the company’s products.  “We plan to work actively towards exporting our  products,” she says. “But our major customers have  reduced orders by around 30 per cent, so we intend  to use this spare capacity to launch new consumer products for the domestic market.”

A study by KazNex found that funding was  actually not the main issue facing SMEs. “Our  research showed that the top problem was not  a lack of money but the need for better access  to information, better marketing skills and an understanding of international trade procedures. The most important thing is to change people’s mindset,” Akhmetova concludes.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 88-90.

BTA Bank restructuring 0

Posted on March 17, 2010 by KazCham

LONDON, March 12 – IA News-Kazakhstan. BTA Bank Restructuring could be completed in May-June 2010, the state plans to exit from the bank’s capital in 2012-2013, said in an interview IA News-Kazakhstan Head of Fund Samruk-Kazyna Kairat Kelimbetov.

“Restructuring was going well, I think  we will sign the conditions of it soon and will finish it, probably, in May-July” – said Kelimbetov to IA News-Kazakhstan.

“In principle, we expect that the state will exit the BTA and Alliance Bank in 2012-2013, because the prices for these banks will be more commercially attractive for us”, – considers Kelimbetov.

He recalled that the Alliance Bank restructuring has been completed.

“On 15 March Alliance Bank provided the AFS with the financial report. I think that somewhere in late May, the BTA also will report”, suggested the head of the Samruk-Kazyna.

“As for Sberbank, we agreed that as soon as we finish restructuring, we will cooperate with them, but the working relationship continues.  We share information”, – he said.

Earlier, chairman of BTA Bank, Anvar Saidenov, said that the creditors agreed to the proposed economic option, but there are legal issues that prevent completion of the restructuring process.

The process of the BTA Bank debt restructuring was started in 2009 as part of Kazakhstan bill on the restructuring. These legislative rules establish requirements that a restructuring of a company is carried out only with the consent of creditors whose total claims exceed two thirds of the debt subject to restructuring.

In October 2009, a specialized financial court of Almaty approved the request of  BTA Bank for debt restructuring as reasonable and as it met all requirements of the Kazakhstan legislation.

In December 2009, in London, BTA bank and a committee of its creditors signed an agreement on the basic commercial terms and the restructuring of financial indebtedness. At the same time, the Agency for Financial Supervision (AFS) of Kazakhstan ruled that BTA Bank has three months to restructure the debt, during which it will not initiate bankruptcy.

In the event that the bank will not agree with creditors before the appointed time, AFS may impose a bank conservation mode and start bankruptcy proceedings.

BTA bank faced problems because of the large external borrowing, which  the bank was unable to serve during a crisis. The international rating agency estimated the total debt of BTA bank in the $ 12 billion, of which approximately $ 4 billion were maturing in 2009.

The main shareholder of BTA Bank is Kazakhstan’s state fund – Samruk-Kazyna, which owns 78% of the shares. After the restructuring of debt,  the share will increase to 85%. The head of fund, Kairat Kelimbetov, said earlier that Samruk-Kazyna plans to keep the part of the bank’s shares for no more than three – five years.

He also noted that in the second quarter of this year, the fund will begin intensive negotiations with Sberbank to sell part or all of their shares to it. Experts believe that Sberbank is the most likely buyer of BTA shares, paying attention to the high probability that Mr. Kelimbetov will become the member of the supervisory board of Sberbank in summer of 2009.

SOURCE: translated from http://www.zakon.kz/165824-restrukturizacija-bta-banka-mozhet.html

NCOC and the Kashagan new deal 0

Posted on March 09, 2010 by KazCham

A KEY ELEMENT of the new Kashagan deal thrashed out by oil companies and the government last year is a greater role for the state oil and gas corporation KazMunaiGaz (KMG) after the ‘big four’ (ENI, Exxon-Mobil, Shell and Total) bowed to government demands for KMG to acquire parity in the new North Caspian Operating Company (NCOC), which has replaced the former AGIP-led KCO consortium.

Under the new arrangements, the oil majors agreed to allow their individual stakes to drop to 16.8 per cent as they sold shares to KMG, whose own share more than doubled from 8.3 per cent. This arrangement converts the ‘big four’ into the ‘big five’ and gives the Kazakh state both symbolically important parity status in the country’s greatest natural asset and equal status in decision-making.

At the same time, however, KMG assumed an equal share in the heavy financial burden of financing another five years of project development, with no return on the investment until 2013 and beyond.

But times have changed. Back in 1998 the predecessor of KMG was forced to sell the state’s original stake in Kashagan to Conoco-Phillips and Inpex for $500 million, precisely because the cash- strapped government needed money in the wake of the rouble crisis in neighbouring Russia. But this time China has come to the rescue, thanks to a $5 billion deal in April under which the China National  Petroleum Corporation will take a 49 per cent stake  in the 500 million barrel Mangistau Munaigas (MMG)  oil and gas field on western Kazakhstan alongside  KMG. Under this deal, China gets access to coveted oil and gas reserves and KMG gets development money for MMG and finance to retain its stake in Kashagan.

Campbell Keir, Shell’s representative in Kazakhstan, spelled out just what this burden entails when he  revealed that Shell, which has already invested more  than $3 billion in Kazakhstan, would be investing  some $900 million a year over the next few years,  most of it in Kashagan. But it is also developing the  Pearls field further south, together with the Oman  Oil Company and KMG, and other smaller projects.  Rather more cheerfully, he added that sharply falling steel and other input prices, thanks to the recession,  meant that it should be possible to contain or reduce  costs, which had spiralled at Kashagan and elsewhere  while the global economy was booming.

The new NCOC arrangement essentially boils down to a division of labour agreement between the ‘big five’. ENI will concentrate on bringing the Eskene processing complex on stream, Shell and Exxon will take a much more hands-on role in managing specific operational aspects of the project, together with KMG. Total, meanwhile, will concentrate on the logistical problems associated with building new export capacity and developing new export routes for the 1.5 million barrels a day of oil expected to flow from the field before the end of the decade. The French are particularly interested in the potential for exporting oil and gas south through Iran at some stage, politics permitting. But they are also working on the other large, new export route projects.

These include the KCTS export pipeline corridor between Eskene, Aktau and Kuryk; and building up tanker, and possibly sub-sea pipeline, routes across the Caspian to Baku and on to Ceyhan in Turkey.  Expansion of the CPC pipeline route through Russia is the other main priority – not only for Kashagan, but also for Chevron, BG and ENI, which already have rising oil and gas condensate production to export from their Tengiz and Karachaganak fields and badly need new capacity fast.

Exxon, meanwhile, is now in charge of drilling operations at the three smaller, and shallower, above-salt fields – Aktote, Kairan and Kalamkas – which are contained within the Kashagan concession area. Shell, which sees considerable synergies in  developing the Pearls field together with nearby  Kalamkas, is working closely with KMG on continuing developments at the main Kashagan project, while  ENI’s Agip, having been relieved of its sole operator  responsibilities, is now concentrating on developing  the complex on-shore facilities at Eskene and the  logistics base at Bautino.

The more focused and co-ordinated approach to developing Kashagan came just in time. Negotiations dragged on against the background of sharply rising global oil prices. But by the time the deal was officially announced, oil prices were plunging below $40 a barrel. The price collapse was partially recouped towards the middle of 2009 as oil prices recovered to around $50, but even at these levels all shareholders, including KMG, will be funding Kashagan and other Kazakh projects from much reduced global cash-flows.

The delayed start of production to 2012/2013  also means that the earning life of the 45-year  Production Sharing Agreement (PSA), which set out the tax and other parameters of the deal back in  1997, is eight years shorter than the oil companies  calculated when first oil was due to flow in 2005. In vain, the companies, especially Exxon, argued for a prolongation of the PSA timeframe, under which the entire project will revert to the state in 2042. The government refused.

Having been denied this extension, the best the oil companies can hope for now is that by 2013 global oil prices will have recovered and remain high for the next generation. The government is also -» hoping for such an outcome – because financing the  government’s long-term development plans, and  ambitions to turn Almaty into a regional financial  centre, are all heavily dependent on high and  rising oil and gas revenues from Kasha an – which,  ironically, is also the key to financing growth of a  more diversified economy.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 36-37.



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