Bloomberg News

BTA Said to Weigh Debt Overhaul, Capital Boost From Kazakhs

December 07, 2011

(Updates with central bank comment from 14th paragraph.)

Dec. 6 (Bloomberg) -- BTA Bank may ask the Kazakh government to back its second debt restructuring or provide additional state funds to help avert bankruptcy, according to two people with direct knowledge of the matter.

BTA may seek a capital injection of more than $4 billion, said the people, who declined to be identified because the information isn’t public. Lazard Freres & Co., which acted as an adviser to BTA during its debt reorganization in 2009, assessed the cost of another restructuring last month, the people said.

Investors may be asked to absorb an estimated loss of about 80 percent on BTA bonds, the people said. The bank is preparing to submit a bailout plan to a new government that will be formed following parliamentary elections set for the middle of January, the people said, adding that BTA is considering either a restructuring or a capital increase or both.

Kazakh sovereign-wealth fund Samruk-Kazyna took over BTA in February 2009, two months before the nation’s largest lender at the time defaulted on $12 billion of debt. It won 92 percent creditor approval for a restructuring plan in May 2010. The state holds an 81.5 percent stake in BTA.

‘Bazooka Approach’

“The bazooka approach is long overdue,” Mariya Gancheva, an analyst at Mitsubishi UFJ Securities International Plc, said in a Dec. 2 report. “If nothing is done to alleviate the burdens of BTA funding, and a more practical business model is not enacted, the bank will soon run out of liquidity.”

BTA has a $150 million coupon payment due in January, Deputy Chief Executive Officer Berik Otemurat said in a Sept. 1 interview. The people familiar with the situation didn’t say whether the bank will make the coupon payment.

The Almaty-based lender faced a capital shortage of 162 billion tenge ($1.1 billion) under international accounting standards as of Nov. 1 after it set aside more money to cover souring loans, according to a statement e-mailed Nov. 28. The bank has a total of $5.2 billion of debt, Bloomberg data show.

“Worsening performance appears to have helped promote discussions between the bank and its major shareholder, which is positive,” Tolu Alamutu, an analyst at Bank of America Merrill Lynch in London, wrote in a Dec. 1 note. “We think any liability management exercise is likely to be coercive in some way.”

BTA Chief Executive Officer Marat Zairov on Nov. 26 declined to say if the bank plans to restructure debt for a second time.

‘Roof is Leaking’

“BTA is similar to a house whose roof is leaking a little bit, and walls are cracking a little bit and the facade is crumbling,” Zairov said. “The foundation remains.”

Eric Lalo, a Paris-based representative at Lazard Freres, didn’t respond to a message left at his office or an e-mail. BTA didn’t reply to an e-mailed request seeking comment.

Samruk-Kazyna is considering more state aid for the troubled lender and may buy back its bonds, Deputy Chief Executive Officer Aidan Karibzhanov told reporters on Nov. 30.

The wealth fund has provided $8.35 billion “through various forms of funding” since February 2009, Gancheva said. At least $5 billion is needed to “return BTA to a going concern,” she wrote.

The bank will pick two out of four “scenarios” and present them to the central bank by year-end, Kazakh central bank Chairman Grigori Marchenko told reporters in Almaty today.

New Business Plan

“They have to select the two most plausible or most promising ones,” Marchenko said. “They are preparing a new business plan now, and when it’s ready it will be possible to answer” if BTA must undertake a debt restructuring.

BTA had its credit rating downgraded one step to CCC from B-, seven levels below investment grade, at Fitch Ratings last month. The move reflected the rating company’s “view of the increased probability of BTA’s default in the near to medium term,” according to a Nov. 14 statement.

Standard & Poor’s withdrew the bank’s ratings four days earlier at BTA’s request after revising the outlook to negative from stable and affirming the long-term credit score at B-, six levels below investment grade.

The bank’s liabilities may be subject to “potential haircuts” of as much as 82.9 percent to reach a 15 percent ratio of equity to assets if “only holders of debt securities participate,” Merrill Lynch estimates.

‘Any Outcome’

“At this point we would not rule out any outcome -- including a debt restructuring, some form of a buyback, or even a split into two entities,” Mikhail Nikitin, an analyst at Moscow-based Renaissance Capital, said in a report today. “The coupon payment on Jan. 1, 2012, is still likely, in our view, but increasingly depends on how -- and how quickly -- the Kazakh authorities resolve the matter.”

The yield on BTA’s dollar-denominated notes due in 2018 rose for a third day, growing 16 basis points, or 0.16 percentage point, to 45.172 percent. That compares to the 8.859 percent, a record low, the bonds were yielding in October 2010.

“We think BTA’s bonds are priced at distressed levels, as if it has already defaulted,” RenCap’s Nikitin said.

A recapitalization by the state, the most investor-friendly option, may be costly and therefore isn’t very likely, Dmitry Poliakov, an analyst at Otkritie Financial Corp., said by e-mail yesterday, adding that “any new restructuring would not be viewed as particularly investor friendly.”

“If restructuring is unavoidable, the negotiations process should start at the earliest possible stage to ensure an orderly and transparent process leading to maximum possible recoveries,” Poliakov said.

--With assistance from Denis Maternovsky in Moscow. Editors: Paul Abelsky, Hellmuth Tromm, Alan Crosby.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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