Astana Finance restructuring at risk of collapse

By bne IntelliNews April 16, 2013

Clare Nuttall in Astana -

Astana Finance, the last Kazakh financial institution crippled by the 2008 global crisis to complete its debt restructuring, has asked for more time as it continues to push the Kazakh government for tax breaks that would allow the $2bn restructuring to go ahead. While international creditors remain onside for the restructuring of several Kazakhstani banks - including two rounds at BTA Bank - the perceived lack of support from the government for Astana Finance's restructuring has caused creditors to lose faith in the process and they are considering taking legal action in the US and UK.

Astana Finance, the country's largest non-bank financial institution, announced on March 27 that it has asked for an extension to the deadline to complete its debt restructuring until December 31, 2013. As of mid-April, the Almaty specialised financial court had not yet reached a decision on whether to grant the extension.

Astana Finance, which defaulted on its debt obligations in May 2009, said in a statement that it needed to extend the deadline, as it had not yet been able to secure an exemption from tax payments on deemed income from the write-down of its liabilities, which would have allowed the restructuring deal agreed with creditors in July 2012 to go ahead. However, the deadline has already been extended once, from November 2012 to March 2013, and so far there has been no apparent progress on the tax exemption.

Astana Finance owes close to $2bn, including over $1bn to international bondholders, around $260m to export credit agencies and up to $700m to domestic lenders. Set up initially to invest into real estate, and later branching out into banking and insurance, Astana Finance was hard hit by the crisis that started with the bursting of the country's real estate bubble in mid-2007. Around 90% of its loans are now non-performing.

Flies in the ointment

Creditors agreed to the 2012 restructuring package on the condition that Astana Finance would receive preferential tax treatment similar to that offered by the government to BTA Bank, Alliance Bank and TemirBank, which also launched debt restructurings in 2009. This would have allowed the company to avoid tax payments potentially costing up to $400m. "Writing off liabilities is a taxable event in Kazakhstan, and the amount could be considerable, so they put in the condition that this would be waived if the restructuring is to go ahead. Without this tax waiver - which was offered to the banks - the restructuring is meaningless," Andre Andrijanovs of Exotix Limited, the London-based frontier market investment bank, tells bne.

Astana Finance's management is still pushing for the waiver, saying that it is committed to the restructuring, but the process has been delayed by factors outside its control - namely the creation of the National Development Agency (NDA), which is expected to take over the management of Astana Finance and other state-controlled financial institutions from sovereign wealth fund Samruk Kazyna. There are also plans to merge Kazakhstan's existing pension funds into a single fund under the control of the central bank, a process that has been linked to the disposal of state banking assets. Both the NDA and the state pension fund are due to be created in the first half of this year.

In its March 27 statement, Astana Finance says that it "can confirm that its request for the Tax Law Amendment is now receiving consideration at high levels within the government of Kazakhstan." Astana Finance expects "significant progress" within three weeks of the announcement. However, according to a source close to the process, many international creditors have already lost faith in the restructuring process, and the creditors' committee is considering its options to file a lawsuit against both Astana Finance and Samruk Kazyna. If this goes ahead, legal action could be taken in multiple jurisdictions including Kazakhstan, the UK and the US.

Creditors are also concerned by the sale of the stake in Astana Finance's banking division, Bank Astana Finance, to three Kazakhstani investors. Kazakhstan's financial regulator published notices of central bank resolutions dated February 25, permitting Kenes Rakishev, Olzhas Tokhtarov and Orazkhan Karsybekov to "acquire significant shareholder status" in Bank Astana Finance.

Since the restructuring of Astana Finance has dragged on for nearly four years, there is growing speculation that the firm's relatively small size and lack of systemic importance in Kazakhstan's financial system means that there is little incentive for the government to ensure that the restructuring process is successful.

Astana is already planning to wind up its involvement in the banking sector by the end of this year. The government, through the Samruk Kazyna fund, nationalised BTA Bank (including its subsidiary TemirBank) and Alliance Bank, and took minority stakes in the other two top four banks, Halyk Bank and Kazkommertsbank, in February 2009. Since then, debt restructurings have been completed at Alliance, Temirbank and twice at BTA. At a government meeting on February 4, President Nursultan Nazarbayev told officials to dispose of government stakes in the banks by the end of 2013. There are already plans to merge and sell off Alliance and Temirbank, while shares in BTA may be offered to Halyk - which has already bought back the government's stake - in exchange for shares in Halyk's pension fund.

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