Clare Nuttall in Almaty, Ben Aris in Moscow -

Kazakhstan's biggest bank BTA is on the ropes and maybe going down for the count. Criminal charges have been brought against its top managers and the former CEO is on the run from the law, after skipping the country last week. At the same time, bne sources in Almaty and Moscow say that a trumpeted acquisition of the bank by Russia's Sberbank is dead in the water.

This week, the Kazakh Prosecutor General's office a launched criminal investigation into the work of BTA's top management. The former head of BTA's board of directors and majority owner of the bank, Mukhtar Ablyazov, has been charged this week with creating and masterminding a criminal group, according to the Prosecutor General's office. Zhaksylyk Zharimbetov, previously the first deputy chairman of the bank's management board, faces similar charges.

At a press conference in Almaty on March 24, the head of the investigating team, Saken Ikhsangaliyev, said he already had proof that a group of companies affiliated with Ablyazov had illegally raised a loan worth over $1bn.

Bankers in Almaty are now assuming the worst. One banker, who asked to remain anonymous, said: "There has been a lot of talk about possible political motivation, but I think if anything the politics is on the side of Ablyazov. It is my firm belief there has been wrongdoing at the bank before the government took over, which is why they had to, it seems Ablyazov had stashed away a lot of money, as the government wanted to get him out."

But investigators will have their work cut out proving these allegations. Ablyazov owned a variety of different overseas assets, according to reports. BTA's official shareholder registration at the end of last year says no one investor owned more than 10% of the bank, but it is widely believed that Ablyazov was the majority shareholder and controlled his stake through multiple offshore holdings and cross shareholdings via stakes he held in different banks under the BTA brand throughout the Commonwealth of Independent States.

"They were all known as BTA, but in some cases these baby-BTAs owned only 15% or so of the bank and it only had a majority stake in a few of them," says the banker in Almaty.

The bank is now in complete disarray as the scandal deepens. Roman Solodchenko, who was demoted from his position as chairman of the management board to deputy chairman just over a week ago, has fled the country and accuses the Prosecutor of politically motivated attacks. A warrant for Solodchenko's arrest was issued on March 21, but his whereabouts and that of his family is not currently known.

Solodchenko has criticised the government's handling of BTA after his demotion, saying it has "destroyed" the bank. At a press conference on March 25, the bank's chairman, Arman Dunayev, a former head of national investment fund Kazyna, stressed that BTA was operating "as a normal commercial bank," and said it had paid all its debts on schedule since the government recapitalisation on February 2.

Still, the bank remains in a very delicate financial position. Dunayev felt it necessary to hold a gun to the collective heads of the bank's creditors by warning that the Kazakh government may stop supporting the bank in the event of demands for early repayment of its debts. "If any of the creditors ask for early debt repayment, Samruk-Kazyna may review its attitude towards supporting BTA group," Dunayev said.

The Kazakh government stepped in to support BTA when it was on the verge of collapse two months ago and has invested around $2bn in the bank since then. The government has recently said it will consider restructuring BTA's foreign debts, which amount to around $12bn. But if the government withdraws its support, then BTA would also certainly collapse and no one will get their money back.

The bank's future looks black at the moment and to rub salt in its wounds, Fitch Ratings downgraded the bank a shocking seven notches on March 24 from 'B+' to 'CC', warning that its revving up to mark the bank down to a default rating. The ratings agency said it had re-rated the bank after Samruk-Kazyna mentioned a possible "modification" of BTA's debt, which the agency has taken to mean there is a very real possibility the bank will default on its debt. Few investors would disagree.

"Fitch notes that if, under a debt exchange, BTA's financial obligations are materially reduced relative to their original contractual terms, it will result in a downgrade to 'D' (default) or 'RD' (restrictive default)," says Andrey Markov, an analyst with Renaissance Capital. "Interestingly, Fitch also says that it has not been able to ascertain to what extent creditors have already sought to accelerate any of the banks' financial obligations, or to assess what proportion of the bank's liabilities have acceleration clauses which might have been triggered by Samruk-Kazyna's recent acquisition of a majority stake in BTA."

Markov says he believes that the lack of clarity has been caused by the fact that Samruk-Kazyna is actively negotiating with several large creditors to keep the bank afloat.

The widely published takeover deal of BTA by Sberbank would have solved many of these problems at a stroke. But, according to bne sources in Almaty, the negotiations have already run aground and both sides are continuing to talk for form's sake. This was confirmed by a bne banking source close to the negotiations in Moscow.

While Sberbank was clearly interested in BTA, as its operations in Kazakhstan and Ukraine would give the Russian retail banking giant access to markets that contain 80% of all bank assets in the CIS, problems surfaced right at the beginning of the due diligence process. A source at Sberbank confirms the problems with the complicated ownership structure highlighted by bne's Almaty source. "Once we started digging into the ownership structure of BTA, it became clear that the bank's assets are fragmented and the parent bank in Kazakhstan is not actually in full control of the assets in places like Ukraine," says bne's source.

At this stage details are hazy, but it appears that BTA's senior management were attempting to move the centre of the bank's operations from Almaty to Moscow and were only halfway through the process when the problems started, leaving the ownership structure in a mess. But given the talks of a possible takeover were initiated at a presidential level, both sides feel the need to complete the due diligence process, despite the fact that sources in both camps confirm a deal is now nigh impossible.

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