Kazakhs Turn to China as BTA Default Makes OECD Lenders Wary

Oct. 12. Bloomberg

By Nariman Gizitdinov

Kazakhstan is turning to China to help finance $26 billion of industrial projects after the default of BTA Bank made some credit institutions in OECD countries wary of lending to the former Soviet republic.

Kazakhstan previously found equipment produced in Organization for Economic Cooperation and Development member countries attractive because of the availability of cheap loans, said Aidan Karibzhanov, managing director of the National Wellbeing Fund Samruk-Kazyna. Since BTA, Kazakhstan’s second- largest lender, defaulted in April, those loans have been harder to come by, he said.

“Meanwhile, countries such as China are ready to provide cheap loans and to sell us high-quality equipment,” Karibzhanov said in an interview in Astana. Samruk-Kazyna controls state shares in 404 companies, according to its Web site.

The economy of Kazakhstan is shrinking for the first time since 1998 after demand for its commodities slowed and global liquidity squeeze led to the default of two major banks, including BTA. Kazakhstan struck a deal with China in April for a $10 billion loan in exchange for oil to stimulate the economy.

BTA, which was taken over by Samruk-Kazyna in February, wants to persuade creditors to settle for as little as 17.75 cents per dollar. BTA said in July that it needed to restructure more than $12 billion in debt, including $3.6 billion in trade financing.

Credit ‘Difficulties’

Kazakhstan has “experienced some difficulties” in relations with some export credit agencies in OECD countries since the BTA default, including Germany’s Euler Hermes Kreditversicherungs AG and the Japan Bank for International Cooperation, Karibzhanov said in the Sept. 23 interview.

A spokesman for Euler Hermes said the company doesn’t comment on individual projects or customers. Kazunori Ogawa, a spokesman for JBIC in Tokyo, also declined to comment on individual deals.

Samruk-Kazyna is seeking investment from China Petroleum & Chemical Corp., Asia’s largest refiner, and Japan’s Marubeni Corp. to finance a $2.6 billion upgrade of KazMunaiGaz National Co.’s Atyrau refinery, Karibzhanov said. The fund controls 100 percent of KazMunaiGaz.

The fund is also in talks with LG Chem Ltd., South Korea’s biggest chemicals maker, on investing in a $6.3 billion gas and chemical complex, Karibzhanov said. Samruk-Kazyna plans to create a state-run “national champion” by investing in fertilizers, including $2 billion in potassium-based fertilizers, he said.

“The Kazakh economy is quite healthy and will boost its growth with the help of production at Kashagan, the country’s biggest oil field,” Karibzhanov said. “That’s something for OECD credit agencies to think about.”