Senior bondholders said Kazakh state-controlled BTA Bank must pay a coupon due Jan. 1 and ensure that its board contains creditor directors before they’ll discuss the lender’s proposal for a second restructuring in as many years.
A group of unidentified creditors made the demands in a Dec. 30 letter to BTA, the Kazakh central bank and the National Welfare Fund Samruk-Kazyna, which owns 81.5 percent of the Almaty-based lender. The letter was sent by New York-based law firm Dewey & LeBoeuf LLP, which represents the bondholders.
“The credibility of Kazakhstan in the international financial markets will be affected by the failure of the bank and Samruk-Kazyna to honor their obligations in respect of the bank’s senior notes, as well as the bank’s other debt obligations,” Dewey & LeBoeuf said on behalf of the creditors. The law firm provided a copy of the letter to Bloomberg News.
BTA’s press office declined by e-mail to comment on the letter. Yuriy Cherkasov, an Astana-based spokesman for Samruk-Kazyna, declined to comment immediately, as did Gulnar Ertlesova, an Almaty-based spokeswoman for the central bank.
BTA’s dollar-denominated notes due in 2018 rose to 18.76 cents on the dollar at 7:39 p.m. Almaty time, sending the yield to 68.909 percent. That compares with the record 78.412 percent the bonds yielded on Dec. 3 and 8.859 percent in October 2010.
BTA Chairman Anvar Saidenov proposed a second restructuring in a Dec. 23 letter to shareholders to stave off bankruptcy. The bank may not have enough cash to make the next interest payment due “on certain of its indebtedness,” he said. In September, the bank said it faced a $150 million coupon payment in January. BTA will begin talks with investors on the proposal in Singapore, London and New York on Jan. 10.
A default by BTA is “probably imminent,” Fitch Ratings said on Dec. 23, after the bank said a second restructuring was “urgently needed.” Fitch cut BTA’s credit rating by two steps to C, which signals imminent default. The lender defaulted on $12 billion of debt in 2009 and won creditor approval for a restructuring plan last year.
The Kazakh central bank said on Dec. 22 that BTA’s restructuring proposal is a “sensible measure” given the lender’s losses and widening capital deficit. Samruk-Kazyna supports BTA’s proposal and backs restructuring part of its debt, Deputy Chief Executive Officer Aidan Karibzhanov said the same day.
“They could have avoided restructuring had they implemented their business plan, managed to reduce their interest payments on government-related funding and managed to clean up the bad bank while growing the good bank,” Mariya Gancheva, an analyst at Mitsubishi UFJ Securities International Plc, said by e-mail.
Under the terms of a trust deed that covers the bonds due in 2018 and 2021 that are mentioned in Dewey & LeBoeuf’s letter, BTA “fails to pay any amount of principal or interest in respect of the notes when the same becomes due and payable and such default continues for a period of 10 business days.”
In the letter, Dewey & LeBoeuf said the bondholder group expected payment to be made on Jan. 3.
BTA’s nine-person board of directors, which included creditor representatives Maarten Leo Pronk and Christoph Schoefboeck, decided last month to call a shareholders’ meeting on Jan. 26 to vote on the restructuring proposal. Pronk later resigned from the board.
“We understand that one of the two directors nominated on behalf of creditors has resigned and that the second may wish to do so,” Dewey & LeBoeuf said in the letter.
It’s “critical that the board of directors includes creditor directors in accordance with the bank’s charter and the deed poll executed by Samruk-Kazyna on Aug. 20, 2010, in connection with the initial restructuring in order for the board of directors to make any valid decisions,” the law firm said on behalf of the senior creditors’ group.
The group said Saidenov’s proposal “directly contradicts” public statements by Samruk-Kazyna and the Kazakh government on their commitment to support BTA. “In addition, it appears that there may have been material misstatements in the bank’s financial statements and other financial information presented at the time of the initial restructuring.”
Gene Zolotarev, founder and chairman of Geneva-based wealth management company Maximus Capital SA, said his clients hold a “sizeable position” in BTA debt, went through the first restructuring and were “forced to accept highly unfavorable terms.”
“And now this?” Zolotarev said by e-mail. “I sincerely hope that these cynical plans to dump this mess on the bondholders are met with a tsunami of outrage.”