Kazakh banks lay out restructuring options

By bne IntelliNews June 2, 2009

Clare Nuttall in Almaty -

Alliance Bank began negotiations with its creditors on June 1 to restructure its $4.2bn of outstanding debts. The news comes as the market waits to hear this week from Kazakhstan's biggest lender BTA Bank about its own restructuring plans, which are likely also to include debt-restructuring plans for its subsidiary Temirbank.

In a conference call on May 29, Alliance Bank directors said creditors would be able to recoup part of their investment, after the bank defaulted on its repayments in April. Alliance lost around $1.1bn of US Treasuries pledged in loan deals, the bank's CEO Maksat Kabashev said. It has also made considerable losses on its loan book.

According to a note from Renaissance Capital, Alliance's pro-forma equity is estimated at minus $2.4bn to $3.4bn, after accounting for additional provisions required. The bank's implied debt haircut is between 67% and 89%.

Kabashev outlined three potential restructuring options - a buyback at 20% of face value limited to $500m, a seven-year rollover at a 50% discount or a 15-year rollover at par.

The bank must secure 100% approval on its syndicated and bilateral loans, and 75% approval on its Eurobonds and Kazakhstan's financial services agency, the AFN, has given Alliance until July 15 to reach an agreement. "If, by July 15, Alliance bank has not reached a satisfactory agreement, the Financial Supervision Agency will move Alliance into conservation," Kabashev said. (Conservation is an administrative state that can be followed by bankruptcy.)

Further details also emerged of suspicious transactions amounting to over $1bn. According to Kabashev, in 2005 and 2008 Alliance pledged $1.1bn worth of US Treasuries to two Russian financial institutions as collateral for loans to other companies. After the borrowers failed to repay the loans, the Russian lenders claimed the securities.

Kabashev declined to name the Russian lenders or the companies that received the loans. However, he told investors that the transactions were not properly approved or recorded at Alliance Bank. Kazakhstan's Procurator General and the country's financial police are investigating the transactions. "This situation is likely to result in a writedown of $1.1bn," he added.

Alliance, Kazakhstan's fourth-largest bank, had grown rapidly until this year. With a large regional network across the country - which it inherited from Pavlodar-based IrtyshBusinessBank and Semipalatinsk City Bank - its primary focus had been on the retail banking sector.

However, after the onset of the crisis, Alliance struggled to pay off its international obligations, finally defaulting in April. The bank's efforts to find an international strategic partner to inject cash and provide expertise had been unsuccessful.

In April, Alliance's assets, loans and deposits all declined, according to monthly data from the AFN, which also reports a decline in assets and deposits across most Kazakh banks. Alliance's losses during the month amounted to $174m, following a loss of $138m in March 2009.

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