Clare Nuttal in Almaty -

UniCredit Group bought a majority stake in Kazakhstan's number-three bank ATF Bank last year, in the first major investment in a Kazakh bank by a western financial services company. With a long-standing share dispute now nearing resolution, UniCredit is preparing to start rebranding and growing its Central Asian acquisition.

UniCredit, which bought ATF through its subsidiary Bank Austria Creditanstalt, was unable to comment on the dispute with hedge funds QVT Financial and Artradis for legal reasons. However, athough not officially concluded, a de facto resolution was reached in June, when a block of 1.47m ATF preferred shares traded on the Kazakhstan Stock Exchange in a transaction valued at $126m.

Back in September, QVT had accused UniCredit of abusing minority investors' rights through its attempt to buy preferred shares in ATF, and was later joined by Artradis, one of the biggest Singaporean hedge funds. In March, QVT won an injunction preventing ATF from using the UniCredit brand or logo. The dispute was the first example of western-style hedge fund activism in Kazakhstan.

UniCredit paid a total of around $2.2bn for ATF in a deal agreed in June, one month before the credit crisis hit the Kazakh banking market. Asked by bne whether UniCredit had any regrets about the deal or its timing, Federico Ghizzoni, head of UniCredit's Poland Markets Division and a member of Bank Austria's management board, admitted, "It is very difficult to foresee such a crisis." However, he added that the crisis "does not alter our view on the attractiveness of Kazakhstan's banking market. Kazakhstan is still a country with great potential." Indeed, Kazakhstan is attractive even in the downturn because, "the banking penetration in Kazakhstan is still lower than in Western Europe and some banking products are not so common yet, which makes the market interesting for international banks."

Open to question

Questions remain, however, about the wisdom of the deal. In the year since UniCredit's plans were announced, ATF appears to have suffered a greater deterioration in asset quality than its peers. In its first-quarter financial results, it reported a net loss of KZT13bn (€68m), mainly because of high provisioning expenses. Yet the picture maybe less bleak than it appears. With UniCredit behind it, ATF has, perhaps, been able to bite the bullet and recognize problem loans more quickly than its competitors. This, analysts say, could allow it to move on to achieve faster profit growth in future.

Two other strategic investors have since followed UniCredit into the Kazakh market, with the downturn allowing them to take advantage of lower valuations in a market that is still seen as having high-growth potential despite the temporary setback. In November, Israel's Bank Hapoalim acquired Kazahstan Demir Bank through BankPozitif, a Turkish bank in which Hapoalim holds a 57.55% stake. Early in 2008, South Korean Kookmin Bank announced it was buying 30% of Bank CenterCredit.

Ghizzoni says he definitely expects more foreign banks to enter the Kazakh market. "Foreign banks will help increase Kazakh banks' capital and develop medium-sized banks' new products and management practices. At the same time, foreign banks will benefit from the fast developing Kazakh economy and banking market." Indeed, Alliance Bank is currently looking to sell a majority stake to an international strategic investor, and both Raiffeisen International and Hungary's OTP are understood to have been perusing investment opportunities in Kazakhstan.

Now that UniCredit has secured its hold on ATF, it plans to rebrand the Kazakh bank, which has a 150-strong branch network across the country, and push forward with its integration plans. "We are currently focusing on integrating ATF Bank into our network," explains Ghizzoni. "Being a universal bank, we offer a broad range of products for all clients and continue to foster the SME and retail segment. Further to the new products we are sure that the stability and trustworthiness our group will be attractive for our clients in Kazakhstan."

While the rebranding has been on hold, ATF has already started introducing new products, including a private banking business in May. "The central objective is the creation of long-term confidential relations with our clients within the framework of the new exclusive direction of bank", said ATF Chairman Alexander Pika when the service was launched. ATF says this business will help bring it into line with the "best European traditions" of UniCredit.

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