Kazakhstan will support state-run Azerbaijani lender IBA’s debt restructuring plan, Kairat Kelimbetov, a board member of the Kazakh state pension fund, said on June 15.
The Central Asian country is hoping to receive an option under which it can one-on-one swap the IBA debt it holds for a 15-year Azerbaijani sovereign Eurobonds paying 3.5%.
The pension fund holds $250mn worth of debt owed by IBA. In a private placement made in October 2014, the fund bought a bond issued by IBA, which defaulted on its foreign debt in mid-May.
Though Kazakhstan has so far not officially joined any creditor group, notes held by the Kazakh pension fund place it in the category of IBA creditors required to swap their holdings for longer-dated paper or take a writedown.
Both Azerbaijan and Kazakhstan have been greatly undermined by low oil prices in the past couple of years. IBA essentially stands as one of the casualties of the slump in the value of hydrocarbon exports. The bank, Azerbaijan's largest, now wants to restructure $3.3bn in debt, but the Kazakh pension fund finds itself in a predicament as assessments by ratings agencies estimate that up 20% in creditor losses follow such a restructuring.
Moreover, the fund, the Single Accumulated Savings Fund, has previously come under fire in Kazakhstan as Kazakh authorities used its finances to support the recently launched EXPO 2017 international fair. In mid-2016, Kazakh authorities also drew on the pension fund to provide a stimulus to the ailing economy as a result of low oil prices.
The pension fund, established in 2013 to nationalise the private pension funds in the country, has about $22bn in central bank-managed retirement savings as well as bond holdings of Kazkommertsbank (KKB), the largest Kazakh lender. Second biggest lender Halyk Bank is preparing to buy a controlling stake in KKB following a planned $7.5bn state bailout of the top bank.
IBA accounts for a third of Azerbaijani banking sector assets. The troubled lender was rescued from the brink of default by the government in 2015, and was set to be privatised. The announcement of its debt restructuring came as a shock to creditors and clients alike, and is believed to be an attempt by Azerbaijani authorities to obtain concessionary terms on its outstanding debt.
The Kazakh pension fund is among a long roster of creditors and clients that will be affected by IBA's default, together with US food giant Cargill, Citibank and Azerbaijani sovereign wealth fund Sofaz.
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