Kazakhstan's financial sector problems drag on

By bne IntelliNews August 22, 2011

Clare Nuttall in Almaty -

Astana Finance is struggling to reach a debt restructuring deal with creditors after Kazakhstan's sovereign wealth fund Samruk-Kazyna pulled the plug on extra financing for the troubled firm. This is more bad news for the country's banks, which are making little headway in dealing with troubled loans as government help fails to materialise.

Astana Finance was Kazakhstan's third financial institution to default, suspending debt repayments in May 2009, three months after BTA Bank and Alliance Bank were nationalised.

Under Astana Finance's latest proposal to creditors, made in July, export credit agencies would receive 100% of the nominal amount of their outstanding claims, while all other creditors would receive new zero coupon notes representing 20% of the nominal amount of their outstanding claims and recovery notes to capture potential future upside.

The proposal is currently being considered by the creditors' committee. Astana Finance's timescale for the restructuring envisages that a term sheet will be drawn up by the end of September, with the restructuring due to finish by the end of December. However, a source close to the negotiations says that timescale is looking increasingly optimistic.

The previous proposal to creditors collapsed when Astana Finance confirmed on August 4 that a $190m subordinated loan from Samruk-Kazyna on which it was based was no longer on the table. Astana Finance "understands that Samruk-Kazyna is no longer willing to consider making any such loan," the statement said.

According to Andre Andrijanovs, director and corporate strategist at emerging markets investment bank Exotix, the new offer is "definitely unsatisfactory" from the point of view of unsecured debt holders. "The latest proposal may be being used to put pressure on unsecured creditors to agree to previous terms. Creditors were not happy with the second proposal from Astana Finance, but the third is even worse," he tells bne.

Unlike BTA, Astana Finance is not considered to be a bank of systemic importance, so the Kazakh government and Samruk-Kazyna have less incentive to prop up the institution. "The outcome of the Astana Finance restructuring may create bad feelings within certain institutions, but provided BTA and Alliance perform on their debt and there is no further restructuring, I think Astana Finance will be forgotten relatively quickly," Andrijanovs says.

Reshuffles and resentment

Meanwhile, BTA, which completed its $10bn debt restructuring last year, announced a top management reshuffle on August 15. A statement from the bank said that the chairman of the board of directors, Arman Dunaev, had resigned. Ex-Nurbank chairman Marat Zairov has been appointed chairman of BTA's management board, replacing Anvar Saidenov, who has in turn replaced Dunaev on the board. "I am sure that the appointment of Mr Marat Zairov as a chairman of the management board, who is well known in the Kazakh financial market, will contribute to the qualitative solutions for new tactical tasks of the bank," Saidenov said in a statement.

The reshuffle is understood to have come after Samruk-Kazyna, BTA's majority shareholder since it was nationalised in February 2009, became dissatisfied with the bank's performance.

While Kazakhstan's economy as a whole is doing well - GDP grew by 7.1% in the first half of this year - most banks are still struggling with their burden of non-performing loans (NPLs), a legacy from the crisis period that shows no signs of disappearing. Government action to help the banks to deal with this legacy has so far not materialised, despite pressure from the sector.

Speaking at the press conference to announce the bank's first-half results, the chairwoman of Halyk Bank's management board, Umut Shayakhmetova, voiced the industry's impatience. "There is still a large pool of NPLs in the banking sector. The government has not yet made a significant progress on creating a Distressed Asset Fund for these assets," Shayakhmetova told journalists on August 17. "There is also a need for changes to the tax law and banking regulation that would allow bad loans to be written off. We are already only four months from the end of this year, and need the legislative changes to happen soon in order them to be effective from January 1, 2012."

There has, though, apparently been progress at Alliance Bank, the second largest Kazakh financial institution to default during the crisis, which on August 14 announced it had reached agreement on a sale of a portfolio of problem retail loans worth $1.25bn. A research note from Visor Capital says, "We believe Alliance Bank is well on track to deliver its 11-12% loan growth target, as its loan book has already increased by 7.6% in the first half of 2011."

Within the sector as a whole, however, NPLs remain high. According to the latest data from Kazakhstan's financial regulator, overall loan quality continued to deteriorate in June, with NPLs increasing by 2.6%.

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