BTA’s diverted collateral: hide-and-seek or Russian roulette?

As of November, trials downtown London are set to start concerning the attempts by Kazakhstan’s bruised and battered bank BTA to recuperate funds and assets embezzled by its former head and major shareholder Mukhtar Ablyazov, now in hiding after having fled the UK where he has been convicted early this year to 22 months in jail for perjury. Attempts to get at least part of diverted collateral for defaulted loans back are also underway in Moscow, where most of the collateral is located. Procedures have also started concerning the liquidation of BTA’s former Moscow subsidiary AMT, declared bankrupt in spring this year. Authorities strongly suspect that the bankruptcy has been fraudulent – prompting Ablyazov, who officially has a declared minority share in the bank and through various proxies controls a much larger stake, not to show up at the first meeting with the bank’s trustee. But then, according to Russian news media, BTA which holds another minority share also failed to be represented at the meeting. Meanwhile, back in Almaty, where creditors to BTA were entitled to half of eventually recovered funds and assets from Ablyazov’s claws, there are questions concerning both the value and the whereabouts of recovery notes in the wake of the bank’s second debt restructuring.


BTA’s diverted collateral: hide-and-seek or Russian roulette?In the course of 2011, the shadows already grew longer for AMT. “Russia’s central bank has pulled the banking licence of mid-sized AMT Bank, which has some 15 billion roubles ($534 million) in retail deposits, a move that may force the regulator’s largest payout to insured depositors,” Reuters reported on July 21. “The Deposit Insurance Agency (DIA) said each AMT depositor would be covered for up to 700,000 rouble. AMT Bank, in which Kazakhstan’s third-largest lender by assets BTA Bank holds 22.3 per cent, with another 19.8 percent controlled by BTA’s former head Mukhtar Ablyazov, is Russia’s 83rd-largest bank with 45.2 billion rouble in assets.“ The agency quoted a statement by the Central Bank saying that AMT Bank “…has invested in low-quality assets without making proper provisions against possible losses” – adding that “…AMT had ignored orders to value its assets soundly, which artificially inflated its equity and concealed evidence that would justify bankruptcy.” As things looked at the time, reimboursing small deposit holders was expected to cost 15 billion rouble, 12 billion of which were covered by the Russian state-held deposit insurance company with the remaining 3 billion having to come out of the liquidation process. This would leave other parties, including larger and corporate deposit holders, shareholders and the tax authorities with losses of up to 52 billion rouble.

Both deposit holders and investors in AMT are poised to undergo a severe haircut, according to Russian news media. According to a report published by Kommersant on September 27, quoting trustee Valery Miroshnikov on behalf of the Russian Deposit Insurance agency which in in charge of the process of AMT’s liquidation, 12.3 billion rouble has been paid out to deposit holders. But only up to 700,000 rouble was paid out in full to each deposit holder, with all money on top of it reduced to 8 kopek on the rouble. The agency has not spared the Central Bank of Russia either. The mentioned amount reportedly also included 28 per cent of a 24 billion rouble loan allocated by the CBR in 2008 to what was then still called BTA Russia, 13 per cent of which was funneled out through American Express to accounts at Morgan Chase in the USA belonging to entities belonging to Ablyazov and proxies.

Shareholders in AMT (see table below) were invited to join a creditors committee with the purpose to divide funds coming out of the liquidation process as fairly as possible. Ablyazov, according to Kommersant, failed to show up for the understandable reason that he would have been handcuffed by police on arrival since he has been charged in absentia with embezzlement in the Russian Federation in relation to a number of fund and collateral diversions to a total equivalent of 4.2 billion US dollar. More curious is the fact that BTA’s parent company failed to be represented either, despite the fact that it is entitled to 824 million rouble reimboursement based on its remaining stake of 22.6 per cent in AMT. According to the newspaper report, the bank was too late in signing up for the meeting. Whether representatives of other shareholders, all of which are under control of Ablyazov’s proxies, were present at the meeting has not been disclosed.

As of spring 2011, in data compiled by one of Russia’s corporate watchdogs Slavinvest which kept record of corporate conglomerates’ ownership structures in the Russian Federation including their offshore connections, the ownership structure of AMT is heavily intertwined. Thus, Drey Associates Ltd. controlled the company DeltaTorg LLC, which holds 19.7706 per cent in AMT Bank LLC. According to Slavinvest, Drey Associates was held by another firm called Powermatic Data Ltd., in turn under control of Intercon Ltd., with the latter standing under personal control of Mukhtar Ablyazov. In the track list, the names of the Wilson couple were not mentioned. They were, however, noted as the owners of a company named Interfunding Facilities Ltd., which in turn controlled Rikas (or Ricas) Finance LLC, which owned 19,3920 per cent in AMT Bank. Drey and Ricas would lead to an innocent-looking base – but no less weird for it when taking a closer look.

In its report published on Aprl 12 2011 and quoted earlier, the Evening Standard referred to a company called Drey Associates Ltd as “…a tiny firm based in Guildford apparently run by a British family but controlled by Ablyazov”. But in reality, the enterprise hid sums behind its modest profile that are a lot more impressive than its looks would suggest. “Anthony Stroud, 76, his schoolteacher daughter Sarah Wilson, and her husband, John, 47, were all directors of Drey Associates when Ablyazov transferred $295 million from BTA’s coffers to it in 2007,” the article read. “At the time, BTA told the Kazakhstan stock exchange that Drey Associates owned 9.8 per cent of the shares in BTA Bank, which were worth hundreds of millions of pounds. But according to documents registered at Companies House, the firm’s declared assets were worth just 46,000 pound in 2007 and 38,000 in 2008.”

Two other shareholders in the Moscow-based bank at the time of writing were AMK-Invest, described as a “project and construction company”, and TuranAlem Capital LLC. AMK, which had a stake of 18.988 per cent in AMT Bank, stood under control of AHA Management Inc., in turn owned by Squarecut Trading Ltd., in turn controlled by a firm called Multiserve Ltd., behind which the name of Ablyazov’s longstanding associate Rinat Batyrgareyev could be found. Behind TuranAlem Capital, which held 19.5905 per cent in AMT, stuck a company called Solent Management Ltd., owned by three individuals called Stanley Edward Williams and Monique-France Kellee, and Nurgali Berkinbayev – the latter being yet another member of Ablyazov’s inner circle. He currently lived in Vilnius, and had Lithuanian nationality. All this left BTA Kazakhstan with a share of no more than 22.2589 per cent in MTA, sharing the Moscovite bank’s boardroom with the very representatives of the same man who had emptied its coffers to the amount of 10 to 12 billion US dollar.

Meanwhile back in Almaty, what is currently happening with AMT suggests a gloomy scenario for those who in whatever manner hold cash or interests in BTA proper should one day creditors decide to dump the bank. In early October this year, syndicated creditors for the second time granted the ailing bank some breathing space after, reputedly reluctantly, the National Welfare Fund Samruk Kazyna pumped another $1.6 billion into its coffers to pay for the most urgent defaulting debt services. Through the summer, the Fund’s officials had repeatedly stated that no more support would be given to BTA whatever would happen. But a court of law in Almaty subsequently ruled that without a second debt restructuring agreement as of December 16 (Kazakhstan’s National Independence Day for all it matters) it would start up bankruptcy proceedings for BTA. In such a case, Samruk Kazyna would be dependent on a trustee appointed by the National Bank to see any of the funds with which it has supported BTA in the past back, either through recovery procedures concerning Ablyazov’s multi-billion thefts or in any other way. In Moscow, such procedures are ongoing while in London they are meant to begin into November.

“The bank will receive considerable debt relief from its creditors holding senior notes, recovery units and original- issue discount notes and various classes of subordinated debt,” Bloomberg in a report on the issue published on October 5 quoted an unnamed spokesperson on behalf of BTA as stating. “The deal will “help ensure the viability of the bank,” the note was quoted as reading. “As part of the debt exchange, senior noteholders will receive $957.8 million of cash and $88.8 million of new notes, recovery unit holders will get $660.2 million of cash and $61.2 million of new notes and original issue discount noteholders will receive $600 million of new notes,” the news agency elaborated. “The amount to be paid to holders of subordinated notes will be determined by BTA and wouldn’t ‘alter or reduce any entitlements deliverable to other creditors,’ the bank said. BTA also agreed with lenders providing the $348.2 million Revolving Committed Trade Finance Facility to extend its maturity until Dec. 31, 2015. In addition, ‘…the lenders have agreed to modify the eligibility criteria to facilitate increased utilisation of the RCTFF,’ the bank said. ‘This will enable BTA to finance new and profitable lending in accordance with its business plan’.”

In a more exhaustive report published on October 12, the International Financial Review shed more light on the issue – adding that syndicated creditors of BTA are likely to miss out on a 50 per cent share in whatever can be recuperated of the money and/or collateral diverted by its former major shareholder and president Mukhtar Ablyazov. “Beleaguered Kazakh bank BTA looks likely to complete its second restructuring in 2-1/2 years after creditors agreed to a deal that will see them receive an estimated 21.1% of their US$11.2bn claims, mostly in cash,” the report reads. “The offer was unlocked after Kazakhstan sovereign wealth fund Samruk-Kazyna agreed to put in US$1.6bn in subordinated debt, which will rank below the US$750m of new senior debt that would remain after the envisaged restructuring.”

“Under the deal, […] BTA will pay mainly cash and some new notes to its senior, original issue discount and recovery unit noteholders,” the IFR report reads further. “No agreement has been reached with other subordinated debtholders. The seniors will receive US$958m in cash and US$89m in new notes, which mature in 2022 and pay a 5.5% annual coupon. Recovery unit noteholders will take US$660m in cash and US$61m in new notes while the OIDs will be issued US$600m of new notes. The OIDs have US$950m outstanding and nominally stand to take a smaller haircut than the other classes. The seniors have US$2.25bn of notes on a par basis and the recovery units have a par value of US$5.1bn. So seniors will receive 46.6% of their nominal claims and recovery unit noteholders just 14.1%.”

The recovery unit notes entitled their holders to half of whatever could be grasped from Ablyazov’s claws in legal procedures ongoing in London, Moscow and other places in the world. “Holders of the recovery notes had previously resisted a deal,” IFR relates in its report. “The units were issued two years ago when the bank was first restructured. They related to an estimated US$5bn that might be recovered from third-party international companies to which former chairman and major shareholder Mukhtar Ablyazov had allegedly made loans. These notes were given in strips to all creditors, but many are believed to have been sold to hedge funds at deeply discounted prices. Ablyazov disappeared in February, the night before being found in contempt of a London court in a case that could have seen him imprisoned for 22 months. […] After the restructuring as proposed, any assets ultimately recovered would now go to BTA directly rather than to recovery unit noteholders.”

The hollowing-out of recovery notes’ value, already uncertain from the very beginning, casts only one more dark spell upon the future of BTA and its chances to bring at least part of its lost funds and assets back home. After the new deal, the percentage they are entitled to has been reported to have been reduced to less than 15 per cent and only after a certain amount with priority has gone to BTA. Some media reports suggest that under the threat original holders of the coupons have already sold them to hedge funds. No names have been mentioned anywhere, but it should not come as any surprise to anyone should down the end of the line the name of no one less than Mukhtar Ablyazov appear…

co-owners AMT (former BTA Russia) share
Delta Torg (Mukhtar Ablyazov) 19.77%
AMK Invest (Rinat Batyrgarayev) 18.99%
Ricas Finance (Sarah and John Wilson) 19.39%
TuranAlem Capital (Nurgali Berkinbayev) 19.59%
BTA KAzakhstan 22.26%

source: Slavinvest