Alliance Bank agrees debt restructuring

Last Updated July 08, 2009

Kazakhstan’s Alliance Bank has reached agreements with its creditors over the restructuring of US$4bn-worth of debt.

The bank halted debt payments in April and was potentially looking to write down between US$2-3bn due to non-performing loans.

A memorandum of understanding has been signed between Alliance Bank and the creditors’ steering committee, which comprises of Asian Development Bank, Calyon, Commerzbank, DEG, ING, Asia Private Bank, HSBC Bank, JP Morgan, Sumitomo Mitsui Banking Corporation Europe (SMBCE) and Wachovia Bank. The agreement was reached after meetings held in London at the end of June and July 6 – 7.

According to an official statement given by Alliance Bank, creditors have been given five options.

One of the easier options is a fixed cash buy-back at a 77.5% haircut. This is limited to US$500mn. The bank is expecting to buy back at least US$1.85bn.
The other options include creditors taking a 50% haircut, a seven-year maturity, and interest rate of 5.8% per year, and a principal amortisation after a four-year grace period.

Creditors can also avoid taking any haircut, but extend the maturity of the debt to 10 years, and principal amortisation to start following a grace period of seven years. Under this option, interest rates for the first seven years will be 4.7%.

Subordinated debt will be automatically allocated to option four which involves no haircut, an extended maturity of 13 years and principal amortisation following a grace period of 10 years. There will be an interest rate of 5.0% per year for the first ten years.

The final option allows creditors to convert debt into preferred shares, discounted by 75-80%. Preferential shares will carry an interest rate of 4% per year.

The bank’s restructuring plans are still pending approval and are to be submitted to the Kazakh Central Bank on July 15.

After the restructuring, Alliance Bank stated that the sovereign wealth fund Samruk-Kazyna will purchase a majority stake in Alliance Bank and inject adequate fresh capital to meet with regulatory requirements.