BTA Seeks $1 Billion From Farmer Amid Fight With Ex-Chairman

BTA Bank is suing a farmer from a “distant village” in Belarus to wrest control of assets it alleges were pilfered by former management before the Kazakh lender defaulted on $12 billion of debt two years ago.

The claim is the biggest against former chairman Mukhtar Ablyazov pursued in London by the bank as it seeks to recover $5 billion in the U.K., First Deputy Chief Executive Officer Nikolai Varenko said in an interview in Almaty Sept. 26.

BTA, which reached a restructuring accord with creditors last year, has filed a series of civil cases against Ablyazov and ex-Chief Executive Officer Roman Solodchenko in the U.K. courts over claims they siphoned money from the bank using fake loans. Varenko says his team is struggling to recover $13.8 billion in impaired loans, almost 80 percent of the $17.5 billion portfolio inherited from previous management.

Ablyazov and Solodchenko say the cases were filed because Ablyazov attempted to mount a political challenge to Kazakh President Nursultan Nazarbayev, who has governed the former Soviet Union’s second-biggest energy producer for two decades. Ablyazov had about $5 billion of assets placed in receivership during an embezzlement lawsuit in London after losing an appeals court ruling last December.

The yield on BTA’s dollar-denominated notes due in 2018 increased for the first day in three, jumping 54 basis points, or 0.54 percentage point, at 3:21 p.m. Almaty time. The bank is rated B-, six levels below investment grade, by Standard & Poor’s and Fitch and has the same credit ranking at Moody’s Investors Service

The Beneficiary

BTA alleges the farmer is the beneficiary of the companies that borrowed $1 billion to buy oil equipment and is also behind the suppliers that never delivered on the contract, according to Varenko.

The farmer’s lawyers have been unable to explain why he took out the loan and need four months before clarifying their position, a stalling tactic that the bank is trying to ward off, Varenko said.

Ablyazov, who fled from Kazakhstan to London to escape prosecution, has faced a possible prison sentence after BTA said in May he violated a freezing order by hiding some of his assets, including a stake in a Moscow skyscraper development and about 600 shell companies.

‘No Improper Loans’

BTA Bank “made no improper loans during the period of Mr. Ablyazov’s chairmanship,” Locksley Ryan, Ablyazov’s London-based spokesman, said by phone today. “Mr. Varenko is raising no new issues and one wonders if he is raising these now because of allegations against the current management.”

The Kazakh newspaper Megapolis said Sept. 19 the authorities are investigating three BTA managing directors for fraud. The managers acted as intermediaries and received kickbacks for arranging repayments to BTA creditors from its borrowers that bypassed the bank itself, the Almaty-based newspaper said, adding that Varenko was also suspected of involvement in the case.

The Astana-based Prosecutor General’s Office didn’t respond to a request for comment faxed by Bloomberg on Sept. 20.

“I’m not a suspect in any case, and don’t have any open issues with law-enforcement bodies,” Varenko said, adding that one of the managers under investigation was his subordinate who resigned in August. He declined to comment if such a probe existed or whether the managers inflicted any losses on BTA.

Siphoned Money

“I am not aware of any charges issued and proved in court about the money siphoned from BTA after the government took over the bank,” he said.

Sovereign wealth fund Samruk-Kazyna took over BTA in February 2009, two months before it defaulted, when credit markets froze and Kazakhstan’s property bubble burst. The state holds an 81.5 percent stake in the lender.

Varenko declined to comment whether BTA transferred its loans to the bank’s creditors.

“It takes time to sell collateral after foreclosure,” Varenko said. After a court ruling, BTA seized a building in Kiev and put it on the balance sheet of a company under its control, allowing the bank to wait for a more favorable moment to sell the asset, he said. Kazakh banking regulations place time restrictions for holding such assets on balance sheets.

Loan Provisions

BTA has allocated provisions equal to 67 percent of its $4.15 billion in Kazakh loans as of Sept. 1 and 81 percent of the $7 billion invested in former Soviet republics, mostly Russia, Varenko said.

The rest of the bank’s distressed assets amount to $2.6 billion of credits extended to shell companies, requiring loan-loss provisions equal to 98 percent of the total, Varenko said. Under Ablyazov, BTA lent funds to shell companies which used them to inject money into the lender’s capital and engaged in other fraudulent schemes, he said.

BTA seeks to write down the hopeless loans and recover the losses from Ablyazov, Varenko said. Asset recovery won’t account for a large part of BTA’s future profit compared with new loans and the active part of its loan holdings, Varenko said.

The bank has a “working loan portfolio” of $1.16 billion, requiring provisions equal to an average level for the Kazakh banking sector, he said.

BTA “is close” to returning ownership over three airplanes parked at a Almaty airport, which were among assets seized by Kazakh prosecutors in 2009, according to Varenko.

You might like: