BTA Bank creditors face severe haircuts

By bne IntelliNews July 30, 2009

Clare Nuttall in Almaty -

BTA Bank's future has come more clearly into focus after the Kazakh bank outlined three possible restructuring options, which could leave creditors facing losses of up to 97%. However, the bank is still in negotiations with Russia's Sberbank over a potential sale - a deal that management believes has a "quite high" chance of happening.

At a meeting with creditors on July 23, BTA officials said that a choice between a discounted cash buyback - with a maximum of $1bn available for the buyback - a rollover or an equity conversion would be offered.

Kazakhstan's Samruk-Kazyna National Wellbeing Fund is expected to provide the bank with an additional $4.3bn of capital through a debt-to-equity conversion. This will reduce the amount the bank needs from other creditors to $5.7bn, according to BTA's base-case scenario, or $8.3bn under its "stress" scenario, which envisages additional losses.

Potential haircuts for senior investors are between 66% - based on the bank's financial position on June 30 and the $4.3bn from Samruk-Kazyna - and 97% under the "stress" scenario. It is not yet certain whether trade finance will be restructured. If trade finance loans are included in the restructuring process, the haircut will be between 55% and 80%, the bank said.

BTA has also suspended interest payments, in addition to principal payments, on its debts as of July 22. Marcia Favale-Tarter, an independent advisor to Samruk-Kazyna, told a press briefing in Almaty that stopping interest payments was a normal step to take at this stage of proceedings. "We are now entering the last phase of the restructuring process and it is normal to preserve liquidity at this point. People had said earlier that we should have stopped interest payments sooner, but we have continued to make the payments until now in order to show our good faith."

The meeting with advisers and creditors is expected to lead to the creation of a creditors' steering committee. Favale-Tarter said the meeting had been positive, with members of the proposed committee expressing their willingness to cooperate with the bank in its restructuring process. "BTA is worth much more to everyone - creditors and the people of kazakhstan - if it is still operational. The recovery level will be higher," she said.

Favale-Tarter also sought to allay fears about the length of time the process is taking. Investors have become impatient as they wait for a resolution on BTA, which when it comes would be seen as a turning point in Kazakhstan's recovery from the crisis; the view is that investors will then know the damage and be able to move on. However, asked how long negotiations with creditors would continue, she said, "that's the million-dollar question."

"We all understand that time is of the essence, and sooner rather than later we expect a resolution and acceptance by creditors," she said. "Once the KPMG due diligence report and the future business plan for BTA have been presented, it won't be much longer."

Possible sale

Anvar Saidenov, chairman of BTA's management board, confirmed that the bank is still in negotiations with Russia's Sberbank over a potential sale. "In this period we are exchanging data and information. It is clear that the Sberbank deal will mainly depend on the restructuring and the report from KPMG," he told journalists. "I think the chances of this deal happening are quite high."

At present, BTA's new management and advisers are still working to clear up the confusion inherited when the bank was taken over by Samruk-Kazyna. Law firm Lovells, which was also hired to clear up Bernard Madoff's trades, has been brought in to help with the same process at BTA. "In this process, we have had to clear up many complexities left by the former management. We have stopped the bank from collapsing, and followed best practice when hiring in order to restore the reputation of BTA," said Favale-Tarter.

She reports that when the new team came in, they found "loans for which the documentation no longer existed, loans to artificial shell companies that when investigated had no economic value, and collateralised loans for which the collateral did not exist." The AFN, Kazakhstan's financial regulator, recorded a non-performing loan ratio of 61% at BTA on June 1.

The confusion also extends to some of BTA's overseas assets, where the ownership is now in question. Saidenov said that the ownership of most the overseas BTA branches including those in Kyrgyzstan, Armenia and Georgia was clear. "BTA Ukraine and Moscow is in process of legal proceedings, as we are questioning decisions by their other shareholders," he said.

"Option three is largely about recoverability of BTA's problem assets," said Favale-Tarter. "For the problem loans with high or 100% provisioning, if anything is recovered later, this will be upside."

Meanwhile, the waiting continues. While the July 23 meeting gave a warning that the financial news for creditors could be worse than originally expected, at least some definite answers will be provided, allowing BTA and Kazakhstan to draw a line under the previous epoch of banking and move on.

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