Kazakhstan’s BTA Bank has agreed a deal with its creditors over the restructuring of its US$12.2bn-worth of senior, subordinated and trade finance debt and interest. The deal between the creditors’ committee and the bank comes close to a year since Kazakh sovereign wealth fund Samruk-Kazyna took over the troubled bank.
A principal commercial termsheet has been signed, and under this agreement a proportion of the total US$3.3bn-worth of trade finance debt will be repaid through a revolving credit facility. The remaining debt will be subject to various restructuring options.
The bank will be writing off a total of US$7.7bn in debt and interest owed as part of the restructuring. Out of this total, US$1bn in cash will be repaid, and US$6.7bn-worth of debt will be converted in equity, with the accrued interest written off. These measures will decrease the total debt burden by US$7.7bn, with the remaining debt totalling US$4.6bn.
Lenders will be given different financial instruments they can use to swap their claims into. Depending on the nature of the original debt, creditors will receive different packages.
Senior creditors will receive cash and new senior debt plus new subordinated debt and equity. Subordinated creditors (except Kazakh pension funds) will be directly converted into equity and will receive 4.5% of BTA shares.
The only creditors set to receive only cash are Islamic finance creditors. Haircuts on these obligations will be 78.5%.
The bank is set to recapitalise itself with US$11.1bn, and the level of write-downs is US$1.4bn lower than BTA’s original proposal to its creditors.
However, after months of negotiations and lobbying from various industry bodies representing the trade finance market, the bank has decided to categorise some eligible trade finance debt separately.
Under the principal commercial terms sheet, US$700mn-worth of eligible non-export credit agency (ECA) trade finance transactions will be repaid over two years via a revolving committed trade finance facility. The rest of the US$3.3bn-worth of trade finance and ECA obligations will be categorised under different restructuring options, and will face some form of haircut.
ECA trade finance creditors will receive a new debt with an 11-year maturity, along with a new subordinated debt and equity package. All other trade finance creditors will be treated as senior creditors.
For example, trade finance-related facilities and loan repayment guarantees will be treated as senior creditors and presented with the various restructuring options.
“The principle commercial termsheet represents a mutually satisfactory resolution for both parties,” says Marcia Favale-Tartar, senior advisor to the prime minister of Kazakhstan and adviser to BTA.
She praised the cooperation of the creditors' committee during the negotiations, but added that “there was still lots of work to be done”, before the details of the restructuring term sheets are finalised.
Concerns had been growing amongst the trade finance community about how trade finance debt would be repaid. Historically this form of debt is paid out first and in full, reflecting the strategic importance of maintaining trade finance lines in a developing country.
However, BTA’s initial restructuring proposals saw all trade finance debt grouped together with all other forms of debt, and subject to discounts.
Trade finance industries, including the Bankers' Association for Finance and Trade (Baft) and the International Forfaiting Association (IFA) had joined forces in recent months, lobbying the Kazakh government to recognise the importance of trade finance and ensure the timely repayment of such facilities.
The bank will produce a detailed termsheet by the end of January 2010. After the structuring, sovereign wealth fund Samruk-Kazyna will hold on to its 85% stake in BTA.
The creditors’ committee comprises of ABN Amro, Commerzbank Aktiengesellschaft, the DE Shaw Group, Euler Hermes (acting for and on behalf of the Federal Republic of Germany), Fortis Investment Management UK, Gramercy Advisors, ING Asia Private Bank, KfW, Standard Chartered Bank, Export-Import Bank of the United States and Wachovia Bank.
BTA Bank, among other Kazakh banks, had up until the financial crisis, been prolific borrowers of foreign debt. However, once the problems in the US sub-prime market hit, the Kazakh banks were left with US$45bn of foreign debt.
Early this year, the sovereign wealth fund Samruk-Kazyna took over the bank. The Kazakh government has accused BTA’s former management of fraud that led to the large-scale losses suffered by the bank. The former managers have denied such charges.
The announcement of the agreement comes at the same time Grigory Marchenko, Kazakh’s central bank governor, criticised his country’s reliance on London for financing, telling the Financial Times in early December that “too many people ran away in the crisis and proved to be our fair-weather friends”.
He went on to say that Kazakh companies would now look to the Middle East and Asia for its future fundraising activities. China is already investing in Kazakhstan’s natural resources and transportation networks.
Although his comments may grate on many in the City of London, one source close to the Kazakh government comments that it would be a natural assumption that the Kazakh government would want to diversify the country’s economy and widen the scope of Kazakhstan’s financing sources.
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