Ablyazov’s secret infectious offensive keeps contaminating Kazakhstan’s banking sector

Certain (and not all) circles within the state conglomerate keep suggesting that Mukhtar Ablyazov, Kazakhstan’s banker/master-swindler in hiding, is taking revenge by pushing terror attempts and other forms of social agitation. The real damage inflicted on society, however, keeps consisting of the mess he left the country’s overall financial sector in. Banks remain highly exposed to risks both on assets and loans – but mainly through the latter with a worrying 4 billion euro outstanding loan exposure, according to the most recent reports. As for BTA, which is overdue with its report on the results over last year, the outlook remains cloudy, with its creditors showing little inclination to accept a second debt restructuring plan following a multi-billion haircut already undergone in 2011.

BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR

Ablyazov’s secret infectious offensive keeps contaminating Kazakhstan’s banking sectorBTA has so far failed to publish its full-year report over 2011. But looking at key figures over the first three quarters of the year, it can only be observed that things have by and large been getting worse. The bank’s current management on behalf of the state and minority shareholders/creditors – with severe reservations held by the latter – is struggling to buy time with its second debt restructuring plan, in the hope that it can recover at least one-fifth, or slightly over a billion Sterling, of the money embezzled by its former management team conducted by one-time bank president Mukhtar Ablyazov on British territory through British court procedures. After long rounds of preliminary rope-pulling by the parties, recuperation procedures are set to start in November this year. Mukhtar Ablyazov and a number of his former associates, as well as a number of companies under their control involved in the diversion schemes, are been barred from the defense in the proceedings – but not all of them. Proceedings are therefore expected to last well into 2014 until BTA stands a chance to lay its hands on any tangible assets.

Back home in Almaty, with Ablyazov having escaped the UK and his whereabouts seeming to be unknown even to his own attorneys, BTA can only witness further deterioration of its position and financials (see table). As of October 1 last year, losses already topped 200 billion tenge (close to a billion euro) while negative capital value topped that amount by some 50 per cent. Into the current year things have already started looking gloomier rather than better. “BTA saw its capital shortage swell 13 percent last month amid plans to restructure for the second time in as many years,” Bloomberg reported on April 28. “The lender’s liabilities exceeded assets by 435 billion tenge ($3 billion) as of April 1, compared with a gap of 385 billion tenge a month earlier, the Kazakh central bank’s financial oversight committee said in a monthly report on its website. BTA’s assets shrank to 1.437 trillion tenge in March from 1.476 trillion tenge in February.”

BTA, following the discovery of a $10-billion-plus scam committed by its former management back in early 2009 subsequently bailed out and now 81.5 per cent state-owned, has been engaged in legal battles around the globe to get at least part of the stolen cash and/or collateral back. On British territory alone, BTA hopes to recover in the order of 3 billion Sterling, half of which goes to its own coffers while the other half will be used to compensate the bank’s own syndicated creditors. Procedures, however, are expected to last well into the upcoming year, while creditors are steadily losing patience. “BTA said holders of recovery units asked for payment in full and ahead of schedule,” Bloomberg reported on April 24. “The lender received a ‘notice of acceleration’ regarding its more than $5.2 billion ‘initial reference amount of recovery units’ from BNY Mellon Corporate Trustee Services Ltd. as trustee for the holders of the units, BTA said in an e-mailed statement today. ‘This action was not unexpected for the creditors’ committee or the bank,’ BTA said. ‘The creditors’ committee (including holders of recovery units) remains committed to cooperation with BTA to achieve a consensus decision on restructuring. The bank believes that this demand will not have a major impact or influence on the restructuring talks’.”

In the same press release dated May 3 concerning the issue, BTA announced that it filed a “Draft Restructuring Plan” at the Almaty Specialised Financial Court “…to initiate the process of a financial restructuring under the laws of Kazakhstan,” in the press release’s words. “In connection with the application, the Bank submitted to the court a prepared in consultation with the advisers to the Bank’s Steering Committee and which was approved by the National Bank of Kazakhstan,” the text reads. “The Steering Committee, which represents multiple classes of the Bank’s creditors, has expressed its commitment to continue working with the Bank in order to develop a restructuring plan which will be fair to all classes of creditors. The Steering Committee advisors are conducting due diligence throughout the month of May. Formal negotiations between the Bank and the Steering Committee and their advisors with respect to the terms of the restructuring are expected to commence in June.”

Rather than just “formal”, those negotiations are poised to consist of hard talk. BTA slipped into yet two other defaults – one on bonds back in January this year and another one on so-called recovery units, i.e. paper its creditors last year obtained as a partly substitute for repayment in cash. “BTA Bank” JSC (“BTA” or the “Bank”) today announces that it has suspended all payments in respect of its U.S$5,221,494,216 aggregate initial Reference Amount of Recovery Units,” a press release from the bank dated April 23 read. “The Bank believes that the suspension of these payments is in the best interests of its creditors generally and that it would not be appropriate to make payments in respect of the Recovery Units when BTA has not paid amounts due on the Bank’s Senior Notes and while discussions continue with stakeholders on the financial restructuring of the Bank.”

According to BTA, members of the steering committee include representatives of Ashmore Investment Management Ltd., Asian Development Bank, D.E. Shaw Oculus International, Inc. with D.E. Shaw Laminar International, Inc., BNP Paribas SA’s FFTW U.K. Ltd., Gramercy Funds Management LLC, JPMorgan Chase & Co. (JPM), Nomura Holdings Inc. (8604), VR Capital Group Ltd., the Royal Bank of Scotland Plc and Swedish Export Credits Guarantee Board – EKN. The presence of Morgan Chase in particular could be raising some eyebrows, after Russian news media revealed that AMT, BTA’s Moscow subsidiary now in the process of bankruptcy with part of its former management behind bars awaiting trial, is being suspected of having siphoned close to a billion greenbacks in debt collections meant for BTA proper, to the American bank on the eve of Mukhtar Ablyazov’s downfall and flight. “24.2 billion rouble received from the Bank of Russia as collateral-free loans were immediately transferred by AMT Bank as funding to a group of companies connected with Ablyazov,”RBC Daily reported on April 24. “Around 11 billion rouble ($372 million) out of these funds were returned by the companies to Kazakhstan’s BTA Bank as a debt payment. After that the money were transferred to an account in American Express [on behalf of] AMT Bank in JP Morgan Chase Bank,” the report read. In the period from October to December 2008, 18.8 billion rouble was being funneled out of Russia to the USA in this manner.

According to the overall picture of the current situation as reported by banks directly and through news media, Kazakhstan’s banks are not yet out of the blue – in part due to BTA’s persisting trouble but not entirely. Loans overdue by more than 90 days at Kazakhstan’s 38 banks amounted to 3.35 trillion tenge ($22.7 billion) as of March 1, or 31.8 percent of total holdings, led by BTA with 1.6 trillion tenge, Bloomberg reports, quoting sources at the National Bank. The total amount in overall deposits at all Kazakh banks (except for the National Bank) held by individuals picked up in 2010 from a massive run-off in the previous two years and took the threshold of 2 trillion tenge in the course of the year – the bulk of it consisting of savings accounts against interest over fixed periods of time. As of end-January 2012, the amount stood at 2.76 trillion, according to the latest available monthly review from the National Bank. But it still represents less than one-fifth of banks’ balance sheets and less than 30 per cent of their outstanding loans. Over half of the 8.2 trillion tenge in assets and “conditional” liabilities consists of categories dubbed “doubtful” to varying degrees whereas another 2.63 trillion is marked as “lost”. As for the 10.446 trillion in outstanding loans, the amounts stood at 5.46 and 2.3 trillion as of February 1 this year.

In early 2012, faced with a 22-months prison term for perjury, Ablyazov fled the UK in turn. But court proceedings have continued ever since – not just in Britain but also in Russia. In the process, many sidelines had appeared strongly suggesting that Ablyazov, even with the help of his sophisticated and complex network of fake-transactions, could never have done what he did on his own. These dimensions in turn give a spooky image of the proportions to which financial enterprises around the world had been becoming intertwined with criminal organisations proper, which made the Ablyazov case even much bigger than in had looked in the beginning, and on top of that casting an eerie light on the way banks had been pursuing business both before and during the economic bubble that in the end led to the so-called global cash crunch – turning at least part of the world’s banking sector into an integral element in global security. It would therefore be interesting, though costly for Kazakh taxpayers who already pumped several millions of dollars into the half-derelict bank are likely to be face with another bill topping $5 billion by the end of the current year, if BTA could be upheld until the outcome of investigations and court sessions reveals the entire affair’s proper proportions – which might well stretch as far as to cause major embarrassment for other banks around the globe along with financial and other authorities and institutions once either their involvement or their negligence has been demonstrated.

BTA’MOST RECENT KEY FIGURES

Indicator As of 10/01/11 As of 07/01/11
Authorized capital 1,178,779 mln. KZT 1,178,771 mln. KZT
Equity capital -318,613 mln. KZT -216,681 mln. KZT
Total assets 1,701,575 mln. KZT 1,786,641 mln. KZT
Net income -203,824 mln. KZT -102,562 mln. KZT
Book value of common share -7.29 KZT -4.96 KZT

source: KASE

KAZAKHSTAN’S LEADING BANKS’ POSITIONING IN NOMINAL FIGURES AS OF APRIL 1 2012

in million Kazakh tenge; 1 USD = KZT 148; 1 EUR = KZT 196

bank assets outstanding loans provisions profit(loss)
Halyk Bank 2,485.6 1,341.7 332.8 10.90
Kazkommertsbank 2,444.3 2,319.1 845.0 0.43
BTA Bank 1,437.9 2,060.7 1,163.5 76.66
Bank Centercredit 1,071.6 804.2 132.7 0.35
ATF Bank 996.0 829.4 177.7 (5.94)
Alliance Bank 533.0 536.6 246.8 (5.22)
Temirbank 250.6 223.3 114.1 1.98
All 38 Banks 13,299.0 10,584.8 3,288.4 96.38

source: Bloomberg

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