Following demands from two creditors to accelerate their repayments in view of “change of control” clauses in their loan agreements, Kazakhstan’s BTA ceased debt principal repayments on April 23.
The state holding company and investment fund Samruk-Kazyna purchased 75% of BTA’s shares in February after the bank - once the largest privately-owned bank in the Commonwealth of Independent States (CIS) - breached the local regulator’s liquidity and capital requirements. This prompted bilateral creditors to take legal advice on whether the move constituted a change of control. On a conference call with investors on March 24, the bank’s new chairman Arman Dunaev, who is deputy chairman of Samruk-Kazyna, warned that the fund would not finance early repayments to individual creditors before a full debt restructuring proposal had been implemented for all investors.
The 2008 annual report for BTA, audited by Ernst & Young, was originally expected to be released in the week of May 11, but has not yet been published. The restructuring proposals drafted by Goldman Sachs, UBS and law firm White & Case will be finalised once the accounts are available.
A further due diligence report on the bank is being prepared by KPMG, on behalf of Russia’s largest bank Sberbank, which is considering a bid for all or part of the Kazakh lender. Anwar Saidenov, the bank’s CEO since March this year, said the expected date for this due diligence to be completed is around May 19. “Based on this presentation, negotiations on the possible sale should move to a more concrete stage. Of course our restructuring is of great interest to Sberbank, who are waiting for the proposals and the results of negotiations with creditors, and their management are quite positive on this exercise,” said Mr Saidenov.
The Kazakh financial markets regulator FMSA has implied that BTA has a three-month period to reach agreement with creditors, who number more than 140 and are geographically diverse, including a group of relatively recent investors from the Middle East. Mr Saidenov is confident that this timetable will be achievable. “Requests for information are quite intense, but even those creditors who accelerated are in contact. We will take into account the interests of all creditors, including the group of them in the Middle East, in the working out of proposals and in the negotiations,” said Mr Saidenov. He added that “my general position is that creditors should be realistic and responsible.”
Marcia Favale-Tarter, a former emerging market specialist for UBS and hedge fund Advent Capital who is now advising Samruk-Kazyna and the Kazakh Prime Minister on the restructuring of BTA, said the intention is “for BTA to be viable as a going concern, the government is committed to that up to a point. That is why the bank has maintained payments necessary for day-to-day functioning, even though it stopped principal repayments.” She added that most creditors had so far been supportive of that position.
Mr Saidenov acknowledged that “there was a certain degree of disappointment” that two banks, Morgan Stanley and another unidentified bilateral lender, chose to demand immediate loan repayments. However, he understood “they had their own commercial reasons behind such a decision, and we were actually ready for such developments”.
Morgan Stanley lodged a request with the International Swaps and Derivatives Association (ISDA) to record an event of default on BTA Bank credit default swaps (CDS) after it refused to repay the bilateral loan. This prompted concerns in the financial media and among other bankers in the CIS that the investment bank also had a significant CDS position from which it has now profited. However, Morgan Stanley’s CDS position was apparently purely a hedge against the loan itself, and was triggered to mitigate mark-to-market losses on that loan, rather than for profit – internal policies would forbid proprietary trading against one of the bank’s loan relationship clients.
BTA is involved in legal actions with previous owners, and over ownership of its Ukrainian subsidiary. The Ukrainian bank apparently announced unilaterally that BTA had sold its stake down to 10% from 49%, but Mr Saidenov said the parent group’s lawyers have filed a petition with the Ukrainian regulators challenging this, and are awaiting a response.
Mr Saidenov has also announced that previous owners of BTA are claiming damages of up to $3bn on the grounds that the takeover by Samruk-Kazyna was unjustified. Ms Favale-Tarter emphasised that government intervention had been “necessary in view of the size of the bank. The regulator stepped in when certain small-scale payment issues were raised to its attention in early 2009.” She added that the release of the 2008 accounts and first quarter 2009 results would provide investors with a clearer picture of the bank and context for understanding the government’s decision to step in.
For the full story of BTA’s recovery plan, including an interview with Mr Saidenov, look out for “Bruised and battered, but ready to move forward”.
