Kazakhstan’s BTA Bank has confirmed predicted losses for 2008, with financial statements approved by auditors Ernst & Young stating that the bank incurred a net loss of 1.188bn tenge (US$7.9bn).
These losses leave the bank with negative capital of KT743bn (US$4.9bn).
Ernst & Young has indicated that due to the level of losses incurred and current defaults under debt agreements, there is ‘uncertainty that may cast significant doubt’ about the bank’s ability to continue functioning as a business.
The bank released the financial statements ahead of announcements on its debt restructuring process.
The statements confirm that the bank’s deteriorating financial position in 2008 meant it was in breach of capital adequacy ratios and lending exposure covenants on syndicated loans, bond programmes and other facilities as of December 31, 2008. This helped accelerate decisions made by major ratings agencies to lower the bank’s rating to default levels in April 2009.
Defaults under lending covenants also resulted in attempted accelerations by some creditors earlier this year. The bank’s new management, which took over the bank at the beginning of 2009, feared that if other lenders also sought to exercise their rights under default or acceleration clauses, the bank would not be able to meet its obligations, and therefore halted all principal payments. Interest payments, however, would continue to be made on outstanding debt.
Following the release of year-end statements, BTA also stated that that due to the worsening economic situation in Kazakhstan since the end of 2008, including the devaluation of the tenge in February and the recession in the country’s real estate and construction markets, it is expecting to make “substantial provisions” in addition to those shown in the 2008 reports.
KPMG is being kept on by the bank to conduct due diligence on the bank, mainly focusing on the bank’s loan portfolio and other financial investments, as well as off-balance sheet items.
The bank is still in the process of finalising its debt restructuring plans and is setting up a creditors’ steering committee to help improve negotiations with bondholders, export credit agencies, lenders and trade finance creditors on the terms of the restructuring.
The proposed 10 members of the committee are: Commerzbank; D.E Shaw Group, DEG; Euler Hermes; Fortis Investments; Gramercy Advisors; ING Asia Private Bank; RBS; US Ex-Im and Wachovia Bank.
A presentation of BTA’s financial situation is to be delivered by KPMG on July 23 to BTA creditors’ steering committee and at the same time, the bank is hoping to provide details of a timeline for the restructuring process and a list of possible debt restructuring options. Presently it is thought that the debt restructuring plan will comprise a cash buyback option for BTA Bank eligible debt, a capped long-term debt rollover option and a debt for equity conversion option.
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