By Charles Van Der Leeuw, KZW senior contributor, Dec 14, 2011
While the quest by now state-controlled BTA bank, Kazakhstan’s one-time blue chip banking corporation, to get its one-time top man Mukhtar Ablyazov to Pentonville first, to Motroskaya later and eventually to the Kazakh gulag rages on, new evidence has been found in the form of a container full of documents which indicate all details concerning the web of more than 600 mailbox companies all over the world Ablyazov and his accomplices used to divert loans from their collateral and the collateral from the lender – meaning BTA – to their own benefit. The documents, or rather the fact that Ablyazov has lied in court over them which makes him liable to be condemned to a mid-range prison term, are at stake at an ongoing trial in London. The real issue is only due to come on the agenda a year from now. A race against time – which given the worsening situation BTA finds itself in, it is far from certain to win. The bank’s capital shortage is growing by the month, and whether provisions to pay the upcoming bond maturity term this coming January will be sufficient looks uncertain, according to news reports.
It looks very much like a soap story indeed. The sneaky business spy jumps out of his fancy car, and hides, equipped with camera and field glasses, near a fenced luxury villa, where the bas business guy is lurking. After hours, a black-windowed car slides out past the armed gorillas at the entrance. Our hero jumps in his car and pursues his prey. Vroom-vroom, zoom-zoom – in the movies boom-boom often follows but that has been avoided so far. The man in the pursued car, apparently having noticed nothing, stops at the gate of a warehouse complex. The camera zooms in on the name: Big Yellow Box. From his car, our master spy waits with his camera till his prey returns, with piles of documents (a variant to a bag full of drugs, gold or cash) under his arm. The photo camera clicks. Those documents are not just documents – they represent billions of dollars and the direction of their destination. This is where the story takes a twist: rather than in a deserted parking garage or on some spooky dock side, the continuation of the thriller is to take place in a courtroom.
The man in the villa is of course fugitive banker and master-swindler Mukhtar Ablyazov, now in court facing up to two years behind bars if convicted – not for the estimated dozen billion US dollar he diverted to accounts under his direct or indirect control from the bank, Kazakhstan’s BTA, which he once controlled, but for lying to the honourable British judge about the amounts and where on British territory and beyond they are supposed to be located these days. “Ablyazov, who fled Kazakhstan to escape prosecution and lives in the U.K., violated a 2009 court order freezing his assets by failing to reveal ownership in a Moscow skyscraper project and more than 600 shell companies used to conceal his wealth, Bloomberg wrote on November 30 quoting BTA’s lawyer as stating at the start of a two-week trial in London. “Ablyazov attended the hearing with an interpreter. “There hasn’t quite been a case like this before,” the lawyer declared at the hearing. “The bank’s primary purpose is to coerce Ablyazov into complying with the court order.”
It goes without saying that the ultimate goal of the bank, though, is to get at least part of the stolen money back on one side and get its right to the collateral covering it acknowledged by courts from Kazakhstan to the UK – including those in the Russian Federation, Ukraine, Georgia and other places where the collateral is located. Getting stolen property back, however, seems to be low on the agenda for those who are supposed to contribute to justice having its way – at least in Britain, that is. “Ablyazov has been made the subject of a worldwide freezing order on a non-proprietary basis and has also been required to state the source of the funds being used to pay his legal expenses,” The Lawyer wrote on December 9 this year. “The bank is, of course, keen to trace or follow the bonds or their proceeds. To that end it has sought and obtained wide-ranging ancillary relief in the form of disclosure and other orders. Applying an earlier decision of the court, Mr Justice Christopher Clarke said that if the defendant were to have the benefit of spending money that would otherwise be frozen, he must show that there is no possibility of the money being the subject of a claim by the bank from a tracing point of view. Notwithstanding the fact that this is a case in which judges have repeatedly said there is strong evidence of wrongdoing and a series of orders that have not been complied with, this is almost tantamount to a reversal of the burden of proof and thus a powerful order to make. Ablyazov was also ordered to answer a list of questions about his funding arrangements, it being suspected that nominees were making payments out of assets that were, in reality, his. One of Ablyazov’s colleagues, Syrym Shalabayev, is said to have concealed the proceeds of the realisation of missing bonds.”
The point the comment tries to make looks pathetic. Apart from hair-cleaving concerning the culprit’s legal rights, which are subject to abuse to begin with, the author of the article clearly misses the point where the structure of the charges is concerned. On the judge’s table are not bonds – which have been hit, as has been widely publicised for well over two years now, by Ablyazov’s diversion schemes whereas the tools he used were not bonds but loan sum and loan liability transfers as well as chain schemes diverting assets which served as their collateral in a different direction. As far as known, Ablyazov never used BTA’s own debt paper as tools to transfer either assets or liabilities to “invisible” connected parties. Any excuse for a lawyer should be able to distinguish such a thing. And the worst thing of it all is that time is too pressing for such futile and erroneous exercises. Shadows are growing longer – not just for Ablyazov but hardly less for BTA and in the process for its Kazakh peers as well.
According to news reports by Bloomberg, BTA is stuck with a capital shortage in the order of 1.1 billion US dollar. In order to prevent BTA’s dire straits from rippling through the entire sector, Kazakhstan is setting up an emergency fund to keep liquidity up at banks in the country. “The share of bad credits will decrease next year as the fund transfers some of the non-performing loans off bank balance sheets and lending grows,” Bloomberg wrote on December 8, paraphrasing the governor of the National Bank of Kazakhstan Grigory Marchenko. “Total loans may grow between 12 percent and 15 percent next year. Loans overdue by more than 90 days at Kazakhstan’s 39 banks reached 3.17 trillion tenge ($21.5 billion), or 31.4 percent of total holdings, led by BTA Bank with 1.42 trillion tenge, central bank data show. BTA may ask the Kazakh government to back its second debt restructuring or provide additional state funds to help avert bankruptcy, according to two people with direct knowledge of the matter.” This and other signs on the wall indicate little more and little less than the fact that BTA’s near future spells gloom and doom. It also looks all the more grim for it now that it has appeared that the only foreign party possibly interested in buying it out has backed off. “OAO Sberbank scrapped a plan to buy BTA Bank (BTAS), Kazakhstan’s biggest before its default in 2009,” Bloomberg wrote in a recent report, quoting Russia’s former finance minister and now Sberbank’s CEO German Gref. “For now we don’t see an opportunity to acquire this bank,” the agency quoted Gref as telling reporters in a visit to Astana on November 30. “There’s a set of reasons for it. Primarily it’s linked to how we see our strategy on the Kazakh market.” The observation’s timing was all the worse for it since the main reason for Gref’s visit appeared to be the signature of a $3 billion loan by Sberbank to the National Railway Company of Kazakhstan – something apparently no domestic bank can afford to do.
What makes it worse for BTA’s eventual fate is that a new capital injection, said to require over another 4 billion US dollar in taxpayers’ money reserves, might well draw its owner, the $80 billion Sovereign Welfare Fund of Kazakhstan Samruk-Kazyna, into financial trouble. “BTA Bank (BTAS) may ask the Kazakh government to back its second debt restructuring or provide additional state funds to help avert bankruptcy,” Bloomberg reporte on December 6 – anonymously quoting whom it dubbed “two people with direct knowledge of the matter”. “BTA may seek a capital injection of more than $4 billion, said the people, who declined to be identified because the information isn’t public. Lazard Freres & Co., which acted as an adviser to BTA during its debt reorganization in 2009, assessed the cost of another restructuring last month, the people said. Investors may be asked to absorb an estimated loss of about 80 percent on BTA bonds, the people said. The bank is preparing to submit a bailout plan to a new government that will be formed following parliamentary elections set for the middle of January, the people said, adding that BTA is considering either a restructuring or a capital increase or both. […] BTA has a $150 million coupon payment due in January, Deputy Chief Executive Officer Berik Otemurat said in a Sept. 1 interview. The people familiar with the situation didn’t say whether the bank will make the coupon payment. The Almaty-based lender faced a capital shortage of 162 billion tenge ($1.1 billion) under international accounting standards as of Nov. 1 after it set aside more money to cover souring loans, according to a statement e-mailed Nov. 28. The bank has a total of $5.2 billion of debt, Bloomberg data show.”
According to Bloomberg, BTA so far has swallowed up the staggering amount of $8.49 billion in various forms of funding from public resources. Its stock and bonds, which represent the bulk of the compensation external creditors took in exchange for a cash “haircut” through which they had to write of more than 80 per cent of the money they are owed by BTA, are currently trading at a mere fraction of their face value. For the Kazakh state, the burden is hardly less painful. Looking at the annual results of Samruk-Kazyna, the rather shocking picture shows that BTA is eating up the bulk of the Fund’s returns on all the corporate assets it manages on behalf of the state. In 2009, the situation was at its worst, with Samruk-Kazyna losing the sum of 732 billion Kazakh tenge – in the order of 5 billion US dollar or 3.5 billion euro according to current exchange rates- on BTA alone, which inflicted an overall loss of 627 billion tenge on the entire Fund. In 2010, Samruk-Kazyna was back to profit amounting to 634 billion tenge – mainly thanks to a boost in profit from the state oil and gas company of Kazakhstan, KazMunayGaz, on the back of higher oil prices on world markets, up from 182 billion tenge in 2009 to 391 billion through 2010, along with a reduction in losses for BTA to 137 billion tenge.
It indicates that the breathing space Samruk-Kazyna thus got in 2010 could well result in a reverse in the upcoming year if the Fund would be forced to allow another blood-letting operation topping $4 billion, with external creditors’ breath getting hotter at the same time. Even if all the money that could be recovered under the authority of Britain’s courts of law should be returned, $5 billion is the best BTA could hope for. Part of it, though, will have to be written off against the loss of rights to collect loans’ collateral, most of which is located on Russian territory with minor assets scattered over other former Soviet republics. Meanwhile, the trial with the aim to settle the frozen assets’ ownership rights is only set to start in November 2012 and expected to last for at least four months. Following appeals against any verdict by any party involved is likely to cause at least another full year of delay for the verdict’s eventual execution. By that time, even if convicted for contempt of court momentarily, Ablyazov will be out of prison again – and the containerful of evidence discovered by our brave investigator might will have changed location more than once.