Kazakhstan’s BTA Bank has reached a deal over its trade finance debt. Although the outcome of the restructuring has been welcomed by the market, a question mark still hangs over Kazakhstan’s reputation in global financial markets. Rebecca Spong reports.

Kazakhstan’s BTA Bank agreed a deal with its creditors over the restructuring of its US$12.2bn-worth of senior, subordinated and trade finance debt and interest in early December 2009. The deal between the creditors’ committee and the bank was reached almost a year after 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.

Repayment of trade
Of particular importance for the trade finance market, is that following months of lobbying from various industry bodies, BTA 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.

Industry fears
In the months preceding the December announcement, concerns had been rapidly 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 revealed in September 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 final outcome on the restructuring has been met with tentative approval in the market. As Sal Chiappinelli, CEO of the Swiss Forfaiting Company (SFC) comments: “I think that a warmest ‘thank you’ goes to the ‘invisible Kazakh regulators and persons’ within their respective bodies who understood and politically fought for the importance of the trade finance instrument as vital and strategically important for the progress and stability of their economy.”

Donna Alexander, president of Baft-IFSA, adds perhaps more cautiously: “The international community is still awaiting full assessment of the impact of the BTA restructuring deal on trade finance. As with many deals like this, it takes time to sort out the details.”

BTA 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.

Kazakhstan’s future

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.

In early 2009, the sovereign wealth fund Samruk-Kazyna took over the bank, with the Kazakh government accusing BTA’s former management of fraud that led to the large-scale losses suffered by the bank. The former managers have denied such charges.

Such accusations have hardly been reassuring news for foreign banks and other investors interested in Kazakhstan, and inevitably the level of lending into the country, particularly from European banks, tailed off during 2009.

However, such tendencies have been condemned by Kazakh officials. Timed with the announcement of BTA’s restructuring deal, Grigory Marchenko, Kazakh’s central bank governor, criticised his country’s reliance on London for financing, telling the Financial Times in early December last year 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.

However, although London and the rest of Europe may be irritated by Marchenko’s comments, in the long-term the outcome of the BTA restructuring will ensure that it is more likely that European banks will be happy to resume trade finance operations in and out of the region.

“The long-term attitude towards cross-border trades with the Kazakh governmental bodies might now be safeguarded,” comments SFC’s Chiappinelli.

He adds that Kazakhstan’s chances of becoming a full member of the World Trade Organisation (WTO) will also be enhanced by the outcome of BTA’s debt problems.

He adds: “I feel that investing in Kazakhstan by means of trade finance instruments is still sound and very well accepted by the forfaiting community.”

However, Baft-IFSA’s Alexander reiterates that relations with Kazakhstan have yet to wholly normalise and that there is still a need emphasise the importance of honouring trade finance obligations. She notes: “Trade finance remains ‘the oil to to the wheels of commerce’. “The markets and authorities around the world recognise that it is a crucial part of the recovery from the global financial crisis.”