Coupon payment hopes lift Kazakhstan’s BTA bonds
Jan 9. Reuters
The benchmark 2018 bond of Kazakh sovereign wealth fund’s BTA Bank hit 10-day highs on Monday, on speculation the bank would pay overdue $160 million coupons rather than risk creditors calling in billions of dollars of outstanding debt.
The struggling bank’s management shocked investors late in December with an announcement it could seek to restructure its debt for the second time following a 2010 deal. It also said it may not find cash for a coupon due January 3.
BTA is in technical default but has a grace period running to January 18 to pay bondholders. Its senior $2 billion 2018 bond, which fell last week to record lows of around 18 cents on the dollar, is now around 21 cents.
“It looks like some people are betting that BTA will pay the coupon,” said Mariya Gancheva, an analyst at Mitsubishi UFJ Securities.
“We know they have the capacity to pay, it is the willingness to pay that has been put in question. It remains to be seen if they can restructure without paying the coupon.”
BTA management is expected to soon meet holders of its Global Depository Receipts (GDRs) to get approval for the debt restructuring. French bank Lazard on Monday confirmed it was advising BTA but declined to give further details.
Analysts say a BTA default may trigger cross-default provisions if disgruntled creditors accelerate other outstanding debt.
This includes a $350 million trade finance loan, $500 million of subordinated bonds due 2025 and, most significantly, a potential $5.2 billion of recovery notes issued in the previous restructuring.
Richard Segal, analyst at Jefferies in London, said the bonds could be technically oversold.
“In addition, because the recovery notes are of equivalent seniority to the senior Eurobonds, if the coupon is not paid by the end of the grace period, they could be accelerated and this provides a small incentive to service the coupon,” Segal said.
The crisis at BTA has pushed up the cost of insuring exposure to Kazakh debt in general, with 5-year credit default swaps hitting three-month highs around 315 bps last week. CDS fell to around 305 bps on Monday.
A default on the coupon may also have implications for the assets of sovereign wealth fund Samruk-Kazyna, which took over as BTA’s main shareholder amid the 2010 restructuring. That deal cut the bank’s net debt by two-thirds, to $4.2 billion.
In a Dec. 30 letter sent to BTA via law firm Dewey & LeBoeuf, bondholders urged the bank to pay the coupon to create a “conducive atmosphere” for negotiations with creditors. A copy of the letter was obtained by Reuters last week.
The letter said that a default on the January coupon or failure to negotiate “in good faith” on restructuring could lead to legal action against BTA as well as Samruk-Kazyna.
Andre Andrijanovs, an analyst at brokerage Exotix, said a coupon default would alienate bondholders, giving different classes of creditors motivation to accelerate payment.
He sees recovery notes at particular risk of acceleration as these are trading at record lows around 5 cents on the dollar.
“It’s always best to pay first and then try to come to a consensual agreement … Unless the government is thinking, ‘let’s just push this bank into liquidation,’ in which case a default is inevitable,” he said.