Kazakhstan’s BTA Bank has signed a memorandum of understanding (MOU) with its creditors’ steering committee to restructure US$10.3bn-worth of debt.
The agreement underlines commitments by both creditors and the bank to work together “in good faith” to determine the final terms and plan for restructuring.
The MOU includes both restructuring proposals formulated by BTA Bank itself as well as a new alternative restructuring plan put together by the creditors’ committee.
Both the creditors and the bank have different views on the level of provisions to be taken by the bank on the loan portfolio. The creditors have proposed a total amount of capital injection of US$9.2bn, while the bank’s option was to inject US$12.5bn, of which US$8bn would be used to write off external debt.
However, despite these differences, the current chairman of the bank Anvar Saidenov comments in a press conference: “The MOU is a sign that we want to achieve compromise with creditors.”
He adds that the MOU is an important step in reaching the “final goal of creating a sustainable bank” that will be able to meet regulators’ requirements and service external debt obligations.
The alternative proposals put forward by the steering creditors’ committee also include plans for new debt instruments to be issued and a separate restructuring option for holders of trade finance debt.
BTA’s original restructuring plans outlined in early September intended to give equal treatment to all debt classes, and proposed only the issuing of recovery and equity notes.
The creditors’ proposals outline a number of options, including a US$1bn cash buyback plus a new debt issuance, with a suggested seven-year tenor, a discount of 51.6% of principal, paying 10% per year cash interest rate, paid semi-annually.
They also proposed that a different debt instrument be issued for export credit agencies (ECAs) and other official government sector creditors and facilities with a tenor of over one year.
There is also a further option for non-ECA trade finance debt. This would include US$1bn-worth of debt to be settled by a new revolving committed trade finance facility. This portion would receive no equity or recovery notes and will be committed to two years.
The creditors’ committee states within the MOU that the “treatment of trade finance creditors should be in line with current market practice” and that “established international precedents in relation to the restructuring of trade finance debt”, should be adhered to.
Regarding this new proposal, the committee worked with the assumption that the aggregate trade finance exposure of the bank is US$3.5bn, including both balance sheet and off-balance sheet debt. Creditors with trade finance exposure up to US$800mn will not participate in the proposed revolving committed trade finance facility.
The creditors’ proposal on trade finance reflects the arguments put forward by industry bodies in the trade finance market that trade finance assets should be treated differently to other forms of debt, due to its strategic importance to a developing country’s development and historical precedents whereby trade debt has usually been paid out first in any debt restructuring.
BTA’s Saidenov explains that work into the trade finance debt of BTA will continue and that presently the bank is conducting a “detailed investigation” into each particular project involving trade finance, before any term sheet is signed.
“We should take into account the nature of the assets, the implications, the status of their borrowers, how these funds were provided, what due diligence was done by the creditors,” he gives as an example of the kind of work that is still continuing.
In response to questions about the creditors’ proposals for the treatment of trade assets, he comments: “It is too early for the bank to comment on these options, but we will look very closely at these proposals.”
The MOU is non-binding on any financial creditor and the restructuring is still subject to certain conditions. The agreement was signed in London between the bank’s advisors and the steering committee during talks held from September 14-17.
BTA and the steering committee will continue to work together to work out terms for the restructuring following completion of due diligence by KPMG and Deloitte.
BTA was taken over by the sovereign wealth fund, Samruk-Kazyna, at the beginning of this year. 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 all charges.
Last week, the former CEO of BTA, Roman Solochenko, publicly condemned the current management’s original debt restructuring proposals, stating the plans are “cause for serious concern”.
In August, BTA Bank officially commenced legal proceedings in the high court in London against Mukhtar Ablyazov, the former chairman of its board of directors, as well as Solodchenko and Zhaksylyk Zharimbetov, the former first deputy chairman of its management board. All three previous chairmen left Kazakhstan and now live in the UK.
On August 13, the English high court granted an injunction order to the bank to freeze the assets of these chairmen. According to BTA Bank, this was on the basis of evidence given to the court that they had defrauded the bank of close to US$300mn through “questionable agreements” entered into last year in favour of a company in which they had secretly held an interest.
In a statement issued by BTA in August, it said: “Through these legal proceedings, the bank is seeking to recover the money paid out under those agreements. The bank fully expects that further claims in relation to other aspects of the former management's fraudulent activity will be issued in due course."
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