KAZAKHSTAN: BTA BANK RESTRUCTURING UPDATES

UNCLAS SECTION 01 OF 03 ASTANA 002258

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC
STATE PLEASE PASS USTDA AND OPIC

E.O. 12958: N/A
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT: KAZAKHSTAN: BTA BANK RESTRUCTURING UPDATES

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REFTEL: ASTANA 1626


1. (U) Sensitive but unclassified. Not for public Internet.


2. (U) SUMMARY: Despite fears and concerns about the progress and
results of BTA restructuring talks, BTA bank management signed the
"Principal Commercial Terms Sheet" on December 7 in London.
Creditor-agreed options include a special provision for trade
finance, which local experts regard as an export-credit-agency
victory. BTA bank CEO Anvar Saidenov asserted that "the period of
ambiguity for the bank is in the past." BTA Bank now must submit
restructuring plans for Creditors' Committee approval before March
23, 2010. END SUMMARY.

SAIDENOV OPTIMISTIC


3. (U) On December 22, BTA bank's press service reported the
successful completion of the main stage of restructuring talks due
to the signature of an outline of "Principal Commercial Terms" in
London on December 7. Anvar Saidenov, BTA bank CEO, asserted that
this document, which demonstrates "absolute consent on all economic
terms between the bank and its creditors is a great stride toward
the restoration of the financial institution." Saidenov further
stated that "the period of ambiguity for the bank is in the past."


$7.7 BILLION IN WRITE-OFFS


4. (U) Under the restructuring plan agreed on December 7, creditors
can choose from a menu of financial instruments in exchange for
their existing debt claims. The plan, with suggested creditor
options, should be submitted to the Creditors' Committee for
approval by March 23, 2010.


5. (U) As part of the plan, BTA bank and the Creditors' Steering
Committee have agreed to write off $7.7 billion in debt and
interest. Upon completion of restructuring, BTA's debt liabilities
should consist of $4.564 billion, of which $797 million will be
subordinated debt. Visor Capital estimates that this offer reduces
write-offs by $1.4 billion compared to earlier proposals due to a
reduction in provisioning and relief on required capital levels.
Debt reduction and the conversion of part of the debt into the
capital shares should generate $11.13 billion of additional
regulatory capital. Samruk-Kazyna (SK),as a main shareholder of
the bank, will convert approximately $4.5 billion of BTA bank's debt
into capital shares. After restructuring, SK will own approximately
85% of the bank's shares, with creditors holding the rest.

A FEW DAYS BEFORE SIGNATURE


6. (SBU) On December 4, Directors of the Investors Relations and
Financial Institutions Department and the Middle East and Asia
Department of BTA bank, Janelle Utemuratova and Nariman
Zharkinbayev, argued to representatives of the U.S. Treasury
Department, OPIC, and EconOff that BTA's restructuring is much more
complicated than that of Alliance Bank. They explained this
complexity resulted from BTA's greater number of foreign
subsidiaries and repeated exercises of due diligence at the
insistence of the Creditors' Committee. They asserted the due
diligence yielded identical results but slowed down the
restructuring process.


7. (SBU) In contrast to Alliance Bank, BTA bank's initial
restructuring proposals did not contain a special option for trade
finance despite its importance to BTA. Because "BTA bank used to
play a big role in this market and covered around 40% of total trade
finance in Kazakhstan," she said, "BTA's approach to trade-finance
restructuring will definitely impact relations with Export Credit
Agencies (ECAs)." Utemuratova underlined the importance for BTA --
and Kazakhstani banks as a whole -- of reestablishing good relations
with ECAs. Although the global financial crisis has reduced trade

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finance's share of investment inflows, trade-finance demand remains
high in Kazakhstan. She argued that local money remains expensive
and limited -- "the inter-bank market is almost dead, and the
deposit basis is quite narrow." As a result, Utemuratova predicted
a separate restructuring option for trade finance.

FOUR SENIOR, TWO JUNIOR DEBT RESTRUCTURING PACKAGES


8. (U) The signed restructuring proposal contains four packages of
"Senior Debt" and two packages of "Junior Debt." Senior Package 1
covers approximately 74.8% of creditors who hold $7.7 billion in
current debt. Most bonds, bank loans, and a part of certain non-ECA
trade-finance debt instruments will fall under this restructuring
package. It will pay $946 million in cash through the issuance of
new eight-year debt instruments with a 70% discount on principal and
15-year subordinated debt instruments. Creditors also will receive
around 8.7% of the bank's shares and 82.43% of BTA-issued recovery
notes.


9. (U) 15.9% of creditors, representing $1.6 billion in
liabilities, are expected to participate in Senior Package 2. This
package should address the requirements of export-credit agencies,
government obligations, and some trade-finance liabilities. This
package envisages the issuance of special debt instruments --
"Original Issue Discount Instruments" (OID) -- with a Day-1 value of
$763 million (or 46.6 % of current principal) and a fully accreted
value of $1.636 billion at the end of 11 years (i.e., the full
accreted value equals current total nominal debt). In addition to
OID, Package-2 creditors can access 15-year subordinated-debt
instruments in the amount of $105 million and approximately 1.8% of
the bank's equity and 17.57% of recovery notes. Senior Package 2
offers various, not mutually-exclusive, instruments to ECAs, and is
the only package that does not contain any "haircuts" for creditors.
(NOTE: Post does not know which package U.S. Export Credit
Agencies, including the U.S. Export-Import bank, OPIC, and the U.S.
Department of Agriculture's Commodity Credit Corporation, will be
offered and accept. END NOTE.)


10. (U) On December 22, BTA bank CEO Anvar Saidenov said that OID
will be offered for 11 years, with a seven-year grace period.
During the latter, the bank will pay a 3.75% per annum interest rate
in cash. Thereafter, it will pay a 3.2% interest rate
semi-annually. However, according to BTA bank, this mechanism
remains under discussion and will be clarified in new Commercial
Terms on January 31, 2010. Creditors enrolled in Senior Packages 1
and 2 also will receive some of the funds obtained by the bank
through its collection of problem assets, including through court
cases.


11. (U) Senior Package 3 will restructure current liabilities on
trade finance in the amount of nearly $700 million. It envisages
the refinancing of liabilities through a new two-year Revolving
Committed Trade Finance Facility (RCTFF). Senior Package 4 is
designed for Islamic banking creditors whose liabilities equal $250
million. This debt will be cleared with $54 million in cash (i.e.,
about 78.5% of the debt will be written off).


12. (U) Junior Package 1 proposes to repay the 28 billion tenge
($186 million) currently owed to pension funds after a minimum of 20
years. Under Junior Package 2, holders of subordinated and
perpetual bonds, which total $1.1 billion, will exchange their bonds
for common shares equaling approximately 4.5% of BTA bank.

AFTER RESTRUCTURING?


13. (U) On December 22, Chairman of the Board of BTA bank Arman
Dunayev said that BTA bank may begin active negotiations with
strategic investors in summer 2010. Dunayev noted that
Samruk-Kazyna Welfare Fund does not intend to remain a long-term
investor. "Immediately after settling all the issues with
creditors, the bank may opt to sell its share. The talks cannot be

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held officially, and investors cannot identify themselves unless the
restructuring is completed. As for Sberbank, we will continue to
discuss its possible acquisition of the bank's share, but there is
nothing more than that. I believe that any strategic investor will
wait for the outcome of the debt restructuring," Dunayev asserted.



14. (U) According to Dunaev, BTA bank will conduct an Initial
Public Offering (IPO) in London within the next three to four years.
At that time, creditors could convert their debt into
"participation notes," and become effective shareholders of BTA
bank. Equity-linked creditors could exchange their debt for Global
Depositary Receipt (GDRs) or into common shares, he claimed.
Therefore, BTA bank must conduct the IPO at a foreign exchange,
which Dunayev argued would be the London Stock Exchange. Further
details on IPO-related matters are expected in the final version of
Commercial Terms.

BTA SAGA: TO BE CONTINUED


15. (U) According to the local press, markets reacted positively to
this news. According to "Respublika" newspaper, prices for BTA
Eurobonds, which prior to December 7 were at 20% of nominal value,
soared to 32% of nominal value. The forecasts of professional
analysts, such as Visor Capital, now also are optimistic about BTA
bonds.


16. (SBU) Still, local experts cautiously assess the announcements
of BTA's top management. Mukhamedzhan Adilov, "Respublika's"
economic observer, asserted that the agreed "Principal Commercial
Terms Sheet" more closely reflects the initial position of creditors
than that of BTA bank. Adilov further argued that export-credit
agencies, trade-financing-debt holders, and government-related
agencies received the most favorable restructuring conditions. He
alleged that subordinated-debt holders and perpetual-bonds holders,
who will receive only 4.5% of the bank's equity, were the most
disadvantaged. According to Adilov, "this adventure [successful
restructuring] will cost Kazakhstan $9-10 billion." Because the
"Principal Commercial Terms Sheet" is not obligatory and a more
detailed version will replace it early next year, creditors'
assessment of these options and their votes on proposed terms
remains unclear.


17. (SBU) COMMENT: Kazakhstani government and BTA bank optimism is
somewhat warranted -- signature of "Principal Commercial Terms
Sheet" is a significant step toward the completion of BTA
restructuring. Although the phantom of conservatorship and
liquidation of BTA bank no longer looms on the near-term horizon,
the restructuring process is far from complete, and the destiny of
Kazakhstan's second largest bank remains vague. Saidenov's claim on
the reestablishment of BTA bank's key position in the market thus
appears exaggerated and perhaps premature. END COMMENT.

HOAGLAND