Anvar Saidenov certainly doesn’t dodge the tough jobs. For several years, he had the task of regulating Kazakhstan’s over-heating banking sector. Now, he’s been put in charge of sorting out the restructuring of the country’s biggest bank, BTA, which the government declared insolvent in February. Julian Evans reports.

Anvar Saidenov has had a central role in the four main phases of Kazakh banking: reform, boom, collapse, restructure.

In the 1990s, he played a key role in helping to reform the sector, first at the EBRD, then at the National Bank in Almaty, where he was deputy to the whizz-kid reformer, Grigori Marchenko.

Together, Marchenko and Saidenov helped make the Kazakh banking sector the envy of the former Soviet Union. The sector was well-capitalised, consolidated, and mainly privately-owned, in contrast to the state-dominated and fragmented banking sectors of other former Soviet countries.

Then, in 2004, Marchenko had a disagreement over economic policy with Kazakhstan’s strong-man President, Nursultan Nazarbayev, and he stepped down as governor of the National Bank, and became CEO of Halyk Bank.

Saidenov stepped up to become governor of the bank.

The boom years
From 2004 until 2008, Saidenov was the key regulator during the second phase of Kazakh banking: the boom years.

During these years, the Kazakh banking sector grew by leaps and bounds. Retail lending, in particular, grew by around 50% a year, and growth hit triple figures at some banks.

To finance this explosion in consumer lending, Kazakh banks borrowed heavily abroad – they borrowed US$18bn internationally in 2006 alone.

No one expanded faster, or borrowed more heavily, than BTA. It borrowed via Eurobonds, yen bonds, syndicated loans, bilateral loans, trade finance deals and securitisations.

The bank’s very ambitious chairman, Mukhtar Ablyazov, used the billions of dollars in debt to build up the biggest locally-owned banking network in the CIS, with subsidiaries in Russia, Georgia, Ukraine, Belarus, Kyrgyzstan, Armenia and Turkey, and offices in the UK, UAE and China.

Some warned that Kazakh banks were borrowing too much abroad and lending too recklessly at home. Marchenko, former National Bank governor, warned as much in an interview with this journalist in mid- 2006. “We shall see how things turn out,”he said darkly.

That year, Saidenov introduced stricter capital adequacy requirements for banks, in an attempt to curb their foreign borrowing, and in 2007, the National Bank further tightened requirements. Marchenko retorted that he was shutting the door after the horse had bolted.

“Perhaps it was not sufficient enough,” reflects Saidenov. “It was still very profitable for banks to borrow abroad and lend at home. But no one could predict this global situation that would develop.”

Collapse of faith
And then, in 2008, the global financial system seized up following the collapse of Lehman Brothers, and risk aversion shot up among emerging market investors. They started to look for those countries or companies who had over-leveraged themselves in the years of easy credit, and Kazakhstan’s banks were top of their list.

The credit default swaps of BTA, Kazkommertsbank, Alliance Bank and other Kazakh banks shot up, in October, to above 1,000 basis points, implying the market thought they would default. The international debt markets were closed to all Kazakh banks, with the exception of Halyk, where Marchenko was now CEO.

Yet even in 2008, as the credit crunch hit western banks, BTA’s chairman, Ablyazov, was expanding his global ambitions. In July 2008, he told press that he wanted to make BTA into “one of the leading banks in the world”.

Then restructuring
Then, in February 2009, the government abruptly stepped in and bought a 78% stake in BTA, via state holding company Samruk-Kazyna. It also bought a controlling stake in Alliance Bank, and a 25% stake in Kazkommertsbank and Halyk.

It fired the chairman and senior management of BTA, and installed Armen Dunayev, deputy chairman of Samruk-Kazyna, as chairman of the supervisory board, and moved Saidenov from the National Bank to become chairman of the management board.

Marchenko, meanwhile, was brought back to become governor of the National Bank, where he oversaw an 18% devaluation of the tenge.

Saidenov insists it wasn’t a nationalisation of BTA: “There was no nationalisation. No shareholder was forced to sell, though existing shareholders’ stakes were diluted.” But some investors say the main beneficial owner of the bank – Ablyazov – was forced to sell.

One investor says: “The government claimed BTA had made insufficient provisions against non-performing loans, and that it needed to make as much as US$3bn in provisions. If BTA did make such big provisions, then it would be insolvent. So the government claimed BTA was effectively insolvent, and seized it.”

The investor adds: “Ablyazov is very keen to put forward the view that the state stole BTA from him, and that the bank was a growing concern.”

The justification for the government’s takeover was that 28% of the bank’s loan book was – or would soon be – non-performing, rendering the bank insolvent and allowing a takeover by the state under the Law on Financial Stability, which was passed in December 2008.

So far, sources close to the bank say that 16% of its loan portfolio is non-performing. We will see if it rises, and the government is proved justified in taking it over.

Some sources suggest the government may have had political objectives in taking BTA from Ablyazov. He was a co-founder of an opposition party in 2001, called the Democratic Choice of Kazakhstan, which was sharply critical of Nazarbayev. In 2002, Ablyazov was sentenced to six years in prison, but he was pardoned in 2003, on condition that he never engage in politics again.

Saidenov insists: “My personal view is that there is nothing of politics in these decisions. I know in detail what assistance was provided to the bank since August 2008, and I know the takeover was on purely financial grounds.”

Criminal charges

Still, the battle between Ablyazov and the state is far from over. While the state may have heavily diluted Ablyazov’s equity in BTA, he seems to have returned the favour. BTA’s stakes in two subsidiaries – BTA Moscow and BTA Ukraine – have also been diluted in the last few months, apparently without the government’s knowledge or approval.

BTA’s stake in BTA Russia fell from a controlling stake to a 22% stake in the fourth quarter of 2008. And the parent bank’s stake in BTA Ukraine fell from 49% to 10% in April, to the surprise of the Kazakh state.

Milena Ivanova-Venturini, CIS equities analyst at Renaissance Capital in Moscow, says: “The Kazakh government didn’t know about the dilution of BTA’s stake in BTA Ukraine until the Ukrainian regulator announced it in April. Our impression is the former owner of BTA is transferring assets from out of the state’s hands.”

It looks like the Kazakh state, and foreign minority shareholders in BTA, could fall victim to one of the curses of the Kazakh economy: untransparent ownership structures.

One source close to the bank explains: “BTA didn’t own a majority stake in its many subsidiaries. They were majority owned by companies close to Ablyazov. We weren’t happy with it, but didn’t see it as a big problem. There were plans to consolidate all holdings in the parent bank by the end of 2009. But now that Ablyazov has left, obviously it’s a big mess.”

The state, meanwhile, has stepped up its own attack on Ablyazov. On March 24, it charged him with being the mastermind of an “organised criminal group”. He and two other senior managers were accused of money laundering and embezzling. They have all gone on the run, and are in hiding, presumably somewhere in the former Soviet Union, or in London.

One investor says: “There’s an information war going on between the two sides. The truth is probably somewhere in between. I don’t think Ablyazov set out to defraud anyone, but he got totally overextended, and then he might have done a lot of things that might turn out to be not too on the level.”

BTA’s new strategy
So, now that the government is in control of BTA, what is its strategy?

First of all, there is the immediate question of restructuring the bank’s estimated US$11bn in debt. BTA hired Goldman Sachs to advise it on the restructuring, and then also hired UBS. They’re coming up with a restructuring proposal in late April.

BTA is worried that some investors are pushing for accelerated payback of the bank’s loans, under a change of control clause in the loans. One investor says: “They may have good legal grounds to demand accelerated payback. But it would break the neck of the bank.”

Unfortunately, this situation became a reality in late April, when investor demands for accelerated payments forced BTA to suspend all principal payments on its debt. Saidenov says: “We have decided to cease all principal payments – both scheduled and accelerated – including principal payments in excess of US$10mn, until we agree and implement, working together with all creditors and investors, a reasonable, transparent and efficient programme for managing our current debt position.”

Investors are already bracing themselves for a significant haircut – BTA’s debt is trading at 20 cents on the dollar.

The bank is also likely to sell off some of its subsidiaries – at least, those ones that it still has control over. The previous management tried, and failed, to sell the Kazakh subsidiary Temir Bank in 2008.

Now, Saidenov says the government is taking a sceptical look at BTA’s extensive international network: “BTA built up the biggest international network among Kazakh banks in the good years. But the situation is quite different now. It’s natural that the bank will focus on domestic markets. Kazakh clients should be the focus of our business. If we get attractive proposals for foreign subsidiaries, we could consider selling them.”

The bank still stands to get a lot of relief from the Kazakh government, such as US$280mn in state refinancing of its mortgage portfolio, and assistance from the US$400mn distressed debt fund that the government is considering setting up.

Saidenov says the government itself is in no danger of running out of cash: “The government has less money that it had two years ago. But in general, it is not short of funds. It still has the US$23bn National Fund.”

Selling the bank?
Saidenov insists the bank “will be privatised eventually”. There’s a chance this will happen in the next few months – the government is negotiating the sale of BTA to Sberbank, the state-owned Russian bank.

Saidenov says: “The process is ongoing. KPMG is doing a due diligence of BTA, and Sberbank senior management is frequently coming to Almaty for negotiations.”

One investor in BTA says: “I’m not sure what commercial sense it would make for Sberbank, but the deal could go through with the backing of the two presidents.”

What would Russia get in return for bailing out BTA? Perhaps Nazarbayev’s support for Prime Minister Putin’s dream of making the rouble the reserve currency for the whole CIS region, or perhaps greater control over the exports of Kazakh oil and gas to the west and China.

If the Sberbank deal doesn’t go through, then Saidenov says the government will restructure the bank, and wait for an opportunity to sell it further down the line. He insists that the Kazakh banking sector is still attractive for foreign investors: “The reforms of the mid 1990s paid off. Of course, there were some bad business decisions, but the standard of banks is relatively high.”

So is BTA still an attractive investment for investors? One investor says: “The share price has fallen from US$300 a year ago, to around US$19 now. So obviously, there’s much more upside than downside risk. If the Sberbank sale doesn’t go through, our strategy will be to be patient and wait for the government to rebuild the bank.”