Bloomberg News

Kazakh Audit Shows State Failures in BTA Bank’s Takeover

November 08, 2012

BTA Bank (BTA) exercised insufficient control and arranged payments to creditors in violation of a moratorium during its debt restructuring two years ago, according to a Kazakh government audit obtained by Bloomberg.

The inspection, completed in February, found that the Almaty-based lender was breaching national legislation and bank regulations, a sign of an “inadequate level of control” on the part of BTA executives, the central bank’s financial oversight committee said in the document.

The bank also arranged repayments that bypassed BTA itself, the regulator said. In violation of a plan approved in September 2010, BTA failed to create a development strategy for 2011 through 2015, according to the audit.

The audit suggests bungled oversight by the state-appointed bank officials and their failure to steady BTA (BTAS), which has blamed its previous management for the implosion that preceded the government takeover three years ago. BTA’s international creditors had their investments slashed by almost 56 percent after the biggest Kazakh lender at the time defaulted on $12 billion of debt in 2009.

BTA, which also failed to make an interest payment on its July 2018 dollar bonds in January, said on Oct. 3 it reached a non-binding agreement with creditors on restructuring $11.2 billion of liabilities. The bank won 92 percent creditor approval for a restructuring plan in May 2010 paying cash and issuing new debt.

Bonds Slump

BTA’s defaulted dollar-denominated notes due in 2018 rose, sending the yield one basis point lower to 35.634 at 9:21 a.m. in London. That compares with the 77.406 percent the bonds were yielding on June 14, the highest since they started trading. The yield on the securities dropped more than 15 percentage points when the agreement with creditors was announced on Oct. 3, after declining almost 12 percentage points over the previous two days, according to data compiled by Bloomberg.

BTA declined to comment on details of the audit, citing the confidentiality of its results in a statement e-mailed Nov. 5. It said the last audit was carried out using data as of Nov. 1, 2011, and referred questions about the assessment of the bank’s management to the regulator.

The National Bank of Kazakhstan didn’t comment on a request sent on Oct. 31. The regulator’s audit of BTA “didn’t find anything new for us, from a negative point of view,” Kuat Kozhakhmetov, head of the central bank’s financial oversight committee, told reporters on Sept. 5.

Thorough Analysis

“Information about violations of any procedures found during inspections by regulatory authorities is thoroughly analyzed,” BTA said in the Nov. 5 statement. “If necessary, working groups are created to establish the fact of violations and take steps to eliminate them.”

BTA’s state-run parent Samruk-Kazyna, which took over the bank in February 2009, injected 883 billion tenge ($5.9 billion) to raise BTA’s equity capital in 2009 and 2010, the equivalent of about 4 percent of gross domestic product. According to the terms of the second restructuring agreement, Samruk-Kazyna will convert about $1.4 billion of its deposits into BTA capital, increasing its stake to over 95 percent from current 81.5 percent.

Biggest Fraudsters

BTA yesterday asked a U.K. court to order former executives including Mukhtar Ablyazov, who has been in hiding since February, to return more than $2 billion the lender said they stole using fake loans, back-dated documents and offshore companies. Ablyazov, a former chairman whom BTA blamed for failures that preceded the state takeover, may “rank as one of the largest fraudsters in corporate history” if the lender succeeds, lawyers for BTA said in documents filed at a London court.

In April, Kazakhstan reopened criminal cases against three BTA managers who were accused of “large-scale embezzlement” after the state’s takeover, according to the Prosecutor General’s Office. The office, based in the Kazakh capital of Astana, declined to comment on the reopened investigations to avoid compromising the secrecy of the investigation, according to a statement faxed on Oct. 31.

In its audit, the central bank found that BTA carried out two deals during a moratorium on payments to creditors.

Credit Risk

“During the restructuring of liabilities, the bank’s management made decisions to approve the transfer of borrowers’ credit risk directly to foreign banks, whereas the bank had the ability to secure a discount on its liabilities as part of the restructuring,” the regulator said in the document.

That contradicts pledges made in a presentation outlining its second debt-restructuring proposal pitched to creditors in January.

“As it did during the 2009-2010 restructuring process, BTA is committed to treat fairly all creditors concerned by the proposed restructuring,” the bank said in the presentation.

The Kazakh Prosecutor General’s Office declined to comment on the two transactions.

In February, BTA said the steering committee included Ashmore Investment Management Ltd., Asian Development Bank, D.E. Shaw & Co., BNP Paribas SA (BNP)’s FFTW U.K. Ltd., Gramercy Funds Management LLC, JPMorgan Chase & Co. (JPM:US), Nomura Holdings Inc. (8604), VR Capital Group Ltd. Every committee member but Nomura joined the restructuring accord announced on Oct. 3, while BNP’s FFTW wasn’t mentioned in the October statement.

BTA Shortcomings

The central bank’s other complaints about BTA included lack of “managerial or any other reporting” to the board of directors by the division managing distressed loans, according to the document. The division provided reports in the form of presentations on a need basis, usually once a year, the regulator said.

BTA bet on the recovery of bad loans and partly blamed it for the failure to fulfil obligations after the first debt overhaul. The bank is presenting its second restructuring plan to investors this week and will meet noteholders on Nov. 16 to ask for their approval of the proposal.

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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