Bloomberg News

BTA May Skip Payment on Capital Gap, Bank-Run Risk, CEO Says

January 18, 2012

(Updates with creditor comments starting in eighth paragraph, Moody’s in 10th.)

Jan. 17 (Bloomberg) -- BTA Bank may skip a $166 million coupon payment due tomorrow because it has an “acute need to restore capital” and faces the risk of a run on deposits, acting Chief Executive Officer Askhat Beisenbayev said.

The Kazakh lender, which is seeking its second restructuring in as many years, has proposed a debt overhaul that’s in the interest of all stakeholders and expects the plan to be supported, Beisenbayev told reporters today in the country’s commercial capital, Almaty.

BTA has scheduled a Jan. 26 vote by shareholders on the non-payment of interest on its bonds as well as a “moratorium on certain payments” to its creditors, excluding depositors. Chairman Anvar Saidenov proposed the restructuring in a Dec. 23 letter to shareholders to stave off bankruptcy. The bank may not have enough cash to make the next interest payment due “on certain” debts, he said.

A group of unidentified creditors has demanded that BTA make the payment before discussing the proposed restructuring. The coupon payment would reduce the exposure of BTA and Kazakh sovereign-wealth fund Samruk-Kazyna to the risk of claims of securities-law violations, according to a Dec. 30 letter to BTA, the Kazakh central bank and Samruk-Kazyna sent by New York-based law firm Dewey & LeBoeuf LLP, which represents the bondholders.

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. The state holds an 81.5 percent stake in the Almaty-based lender, which won 92 percent creditor approval for a restructuring plan in May 2010.

Plan B

“I propose to discuss after the vote” the question of what the bank will do if shareholders don’t support BTA’s restructuring plan, Saidenov said today, declining to say if the lender will pursue a restructuring regardless of the vote outcome. “One always needs to have Plan B, but it’s also not certain and has different options.”

Under the terms of a trust deed that covers the bonds due in 2018 and 2021 that are mentioned in the creditors’ letter, if BTA “fails to pay any amount of principal or interest in respect of the notes when the same becomes due and payable and such default continues for a period of 10 business days.”

‘Very Disappointed’

A group of the bank’s senior creditors said today it’s “very disappointed that BTA has chosen not to pay the coupon despite the fact that it has ample liquidity to do so.”

“We are now entering a process of appointing a formal committee,” the group said in an e-mailed statement. “The lack of willingness of BTA, a government-owned institution, to service its debts and pursue a restructuring just 18 months after the last one is very surprising.”

BTA had about $700 million of liquid assets as of the end of November, excluding about $1 billion of bonds eligible for repurchase transactions with the central bank at the end of the third-quarter, Moody’s Investors Service said in a report e- mailed today and dated yesterday.

The bank’s capital shortfall may exceed 735 billion tenge ($5 billion) by the end of 2012, assuming a minimum 10 percent Tier 1 ratio,’’ BTA said last week in a presentation to holders of its global depositary receipts.

‘Outright and Disorderly’

The resignations of two board members representing the lender’s creditors and Marat Zairov as chief executive last week suggest a conflict between the bank’s key shareholders that “increases the likelihood of an outright and disorderly default” tomorrow, Moody’s said.

“A failure to reach an agreement between Samruk-Kazyna and the bank’s creditors on restructuring terms will likely lead to BTA’s liquidation, with creditors unlikely to receive any repayments,” Armen Dallakyan, a London-based Moody’s analyst said in the report.

The interests of different groups of creditors don’t coincide and the bondholders have the right to accelerate payments in case of default, Saidenov said. Owners of the bank’s recovery units may speed up payments if bondholders make the step, he said.

BTA creditors received 10-year recovery notes as part of a restructuring accord in 2010, under which they’ll get 50 percent of anything the lender recovers from impaired assets, including any award in a lawsuit against the bank’s previous management.

‘Not Too Many Options’

“I think at this stage creditors don’t have too many options and they are going to lose a lot more if they vote against the plan,” Apostolos Bantis, a credit analyst at Commerzbank AG in London, said by e-mail today. “If creditors accelerate, the bank is likely to go into liquidation –- in such scenario BTA will probably withdraw most of the valuable assets to protect depositors and Samruk-Kazyna’s assets and liabilities and there will very little left for creditors.”

Senior creditors may be asked to absorb a loss of “at least 50 percent as the best-case scenario although the haircut could rise up to 75 to 80 percent should Samruk-Kazyna prove unwilling to provide new equity,” according to Commerzbank.

BTA has a “good possibility” of reaching an agreement with investors, central bank Chairman Grigori Marchenko said Jan. 10. The Kazakh lender saw deposit inflows from households after the debt proposal was announced, according to Marchenko.

--Editors: Paul Abelsky, Andrew Langley

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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