Kazakh Bank to Buy Back $500 Million of Its Bonds After S&P Cut

  • Bonds rally after Kazkommertsbank says will buy 3 maturities
  • S&P downgraded lender’s debt to deep-junk level of CCC+

Kazkommertsbank, Kazakhstan’s biggest lender, will buy back as much as $500 million of its dollar-denominated bonds as part of a turnaround plan following its downgrade this week by S&P Global Ratings.

The bank will spend between $300 million and $500 million to repurchase three of its notes that have the nearest maturity, Kenges Rakishev, the lender’s chairman and majority owner, told reporters at a strategy presentation in Almaty on Wednesday. Kazkommertsbank’s $500 million bond due in November jumped 0.36 cent on the dollar to 97.55 cents by 1:25 p.m. in London.

“While our consultants advise us to buy back $300 million, we are ready to buy back $500 million,” he said.

The lender has come under pressure as weakening oil prices through 2015 hurt the energy-exporting Kazakh economy, driving down the tenge currency. S&P cut Kazkommertsbank’s rating on May 16 to CCC+, deep in junk territory, citing “a difficult operating environment.” Kazkommertsbank has total outstanding debt of $4 billion, according to data compiled by Bloomberg.

Bonds Rally

The bond rally on Wednesday pushed yields on the 2016 notes down 72 basis points to 12.46 percent. The lender’s 750 million-euro note due in February 2017 jumped one euro cent to 97.17, sending yields 1.49 percentage points lower to 10.83 percent.

Rakishev, son-in-law of Kazakhstan’s defense minister, has built a 71 percent stake in the bank after buying out other shareholders including founder Nurzhan Subkhanberdin. He said the lender has about $2 billion of liquidity that it can draw on to fund the bond purchases as a new management team focuses on retail customers and small to medium-sized enterprises. Rakishev said the bank may also expand into Islamic finance.

“Today there is no question on whether the bank needs capitalization,” he said. “If this issue arises, I will support the bank as a shareholder."

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