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DE RUEHTA #1302/01 2150941
ZNR UUUUU ZZH
O 030941Z AUG 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5928
INFO RUCNCIS/CIS COLLECTIVE 1803
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1170
RUEHKO/AMEMBASSY TOKYO 1872
RUEHUL/AMEMBASSY SEOUL 0831
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1356
RUEKJCS/SECDEF WASHDC 1268
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1747

UNCLAS SECTION 01 OF 03 ASTANA 001302 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET ENRG EINV EFIN ELAB KZ
SUBJECT:  KAZAKHSTAN:  BTA BANK OFFERS TO RESTRUCTURE ITS DEBT 
 
REF:  (A) ASTANA 1173 
      (B) ASTANA 1174 
      (C) ASTANA 1175 
      (D) ASTANA 0924 
      (E) ASTANA 0386 
 
ASTANA 00001302  001.2 OF 003 
 
 
¶1.  SUMMARY:  On July 24, BTA Bank, one of Kazakhstan's largest 
commercial banks, declared a moratorium on interest payments.  This 
follows the bank's decision in April to cease debt principal 
payments.  BTA's external debts are valued at $13 billion, of which 
the bank said it will repay $3 billion this year.  On July 23, BTA 
managers met with creditor banks and Eurobond holders in London, and 
proposed establishing a Creditors Steering Committee to negotiate 
and settle its outstanding debt.  BTA outlined its restructuring 
plan and presented three debt restructuring scenarios.  None of the 
options is very appealing, and under the worst-case scenario, 
creditors who provided trade finance could lose up to 97 percent of 
their investment.  BTA's creditors said they would continue working 
with the bank to restructure its external debt and maintain the 
bank's viability, but they reserved the right to take "any 
appropriate action" to protect their interests.  Last year, BTA's 
net losses were $7.88 billion, and its total obligations exceeded 
the value of its assets by $4.9 billion.  END SUMMARY 
 
SYSTEMIC IMPLICATIONS FOR KAZAKHSTAN'S ECONOMY 
 
¶2.  BTA remains one of Kazakhstan's most important commercial banks. 
 As of June 1, BTA was the country's largest commercial bank in 
terms of assets (2,658.5 billion tenge, or approximately $17.68 
billion) and retail deposits (173.2 billion tenge, or approximately 
$1.15 billion).  BTA is reeling, however, and cannot meet current 
debt obligations.  BTA's external debts are valued at more than $12 
billion, of which the bank said it will repay $3 billion this year. 
The bank urgently needs a new capital injection in order to remain 
in compliance with Kazakhstan's minimum capital requirements, and is 
considering two scenarios:  a base case that requires $10 billion in 
new capital, and a stress case that requires $12.6 billion.  Visor 
Capital reported on July 27 that the Samruk-Kazyna National Welfare 
Fund intends to add $4.3 billion of capital via debt-to-equity 
conversion, thereby reducing the amount required to be injected by 
other creditors to $5.7 billion (base case) or $8.3 billion (stress 
case). 
 
¶3.  BTA's restructuring will significantly influence the structure 
and stability of the local banking sector and its image in the eyes 
of Western investors.  Restructuring BTA's debt is also an important 
part of the government's economic recovery plan.  On July 24, 
Kazakhstan's Chairman of the National Bank, Grigoriy Marchenko, said 
on the Russian television channel "RBK" that "as soon as the 
situation with BTA and Alliance Bank is settled, we will see 
positive economic growth in the country." 
 
BTA'S RESTRUCTURING PLAN 
 
¶4.  The July 23 meeting with creditors in London was significant for 
three reasons.  First, after declaring a moratorium in April on debt 
principal payments, BTA Bank declared a moratorium on interest 
payments as well.  Second, BTA managers proposed establishing a 
Creditors Steering Committee to negotiate and settle its outstanding 
debt.  Third, BTA outlined its restructuring plan and offered 
creditors three options:  (1) BTA would buy back debt from creditors 
at a discount; (2) BTA would honor long-term debt at face value 
(par), but at reduced interest rates; and (3) BTA would convert its 
debt to equity, at a discount to be discussed with the Steering 
Committee.  The creditors said they would continue working with BTA 
Bank to restructure its external debt, but reserved the right to 
take any actions they deem appropriate to protect their interests. 
 
A BUZZ CUT FOR CREDITORS 
 
¶5.  Those taking the first option would be given a choice to sell 
their debt for cash at a significant discount, ranging from 55 
 
ASTANA 00001302  002.2 OF 003 
 
 
percent to 97 percent, depending on whether or not the debt was for 
trade finance.  If BTA Bank's auditors KPMG recommend that it 
increase the amount of cash on hand to cover non-performing loans 
(i.e., provisions), then the discount rate would increase to as much 
as 97 percent.  If KPMG does not recommend an increase in 
provisions, the discount rate would be lower.  The maximum cash 
available under option one is limited to $1 billion.  Under the 
second option, the maximum number of participants is estimated at 35 
percent of the creditor base.  The third option would require the 
participation of 20 percent of creditors.  Under this option, 
conversion to shares of BTA bank would be possible if assets that 
had been illegally withdrawn from the bank were successfully 
returned. 
 
OUTSTANDING LIABILITIES 
 
¶6.  The Chairman of the Managing Board of BTA Bank, Anvar Saidenov, 
said at the press conference on July 25 that $3.5 billion of BTA's 
debt is expected to be restructured.  He added that this amount 
includes on-balance sheet ($1.77 billion) and off-balance sheet 
($1.78 billion) obligations to finance trade operations.  Saidenov 
also said that BTA has been a leader of trade financing among CIS 
countries.  BTA bank recommended the Creditors Steering Committee 
include representatives of Deutsche Investitions-und 
Entwicklungsgesellschaft mbH (DEG), Euler Hermes, the U.S. 
Export-Import Bank (Ex-Im), and other export credit agencies and 
banks that have been active in trade financing. 
 
¶7.  According to BTA's London presentation, 51 percent of the bank's 
liabilities, or $6.2 billion, are in bonds; 29 percent, or $3.5 
billion, is trade finance; 20 percent, or $2.4 billion, are loans 
(syndicated, bilateral commercial, and bilateral international 
financial institutions); and the remainder ($7 million) is in 
derivatives. 
 
¶8.  The banks that are most exposed to BTA bank are ING Bank with 
$626 million outstanding, Credit Suisse with more than $500 million 
outstanding, Standard Bank with $100 million outstanding, and 
Germany's DEG, with $74 million outstanding.  The Overseas Private 
Insurance Corporation (OPIC), jointly with NatCity and Wachovia, 
holds outstanding debt of $32 million.  In addition, national oil 
company KazMunaiGas reportedly has more than $1.3 billion at risk 
with BTA. 
 
THE FUTURE OF BTA IS UNCLEAR 
 
¶9.  International auditors have been very reluctant to comment 
publicly about the future of BTA bank.  In comments on BTA's 
Consolidated Financial Statements, Ernst and Young reported that the 
bank incurred a net loss amounting to 1,188.05 billion tenge ($7.9 
billion) in 2008 and, as of that date, BTA's total liabilities 
exceeded its total assets by 742.78 billion tenge ($4.9 billion). 
According to Ernst and Young, "These conditions, including current 
defaults under debt agreements, indicate the existence of a material 
uncertainty which may cast significant doubts about the Group's 
ability to continue as a going concern." 
 
WHITE (RUSSIAN) KNIGHT 
 
¶10.  Despite this bleak outlook, BTA's senior management remains 
upbeat about the bank's future, not least because Russia's Sberbank 
has expressed interest in acquiring the troubled bank.  BTA Chairman 
Saidenov said at the July 25 press conference that the chances of 
such a deal are "rather high," explaining that negotiations are well 
underway.  According to Saidenov, BTA Bank and Sberbank have 
established a joint working group, and the two banks regularly 
exchange information.  However, Sberbank officials have been 
reserved in their public comments and continue to insist that their 
final decision will depend on the outcome of the bank's external 
debt restructuring program. 
 
¶11.  Although BTA's London presentation did not provide specific 
 
ASTANA 00001302  003.2 OF 003 
 
 
dates for the next steps of the restructuring plan, BTA management 
intends to press forward with negotiations.  Marcia Favale-Tarter, 
an independent advisor to the Samruk-Kazyna National Welfare Fund, 
said during the press-conference that all investors are naturally 
interested in BTA's ability to repay its debts, but should also 
"understand the meaning of the word 'partnership.'  Serious 
investors will be interested in continuing talks in order to keep 
BTA Bank viable and healthy." 
INVESTIGATION OF ABLYAZOV AND OTHER BTA MANAGERS CONTINUES 
 
¶12.  Kazakhstani authorities continue to investigate former BTA 
Chairman Mukhtar Ablyazov and other former top managers of BTA Bank 
(reftel D).  On June 24, the Prosecutor General's office issued an 
international warrant for the arrest of Kazbek Bektursunov, an 
assistant to the Mayor of Kyiv.  He is suspected of cashing out, at 
the behest of Ablyazov, 40 percent of the shares of BTA's Ukrainian 
affiliate.  In July, Russian police detained Veronika Yefimova in 
Moscow.  She is BTA Bank's former head of Corporative Business 
Management and was wanted on embezzlement charges.  On July 14, the 
Prosecutor General's office announced the results of its first case 
against BTA and TemirBank, a wholly-owned subsidiary of BTA.  Twelve 
members of the credit committees of both banks were charged with 
embezzlement, and six were found guilty and sentenced to jail.  In 
addition to the jail sentences, the court fined the guilty parties 
$670 million and seized 825 apartments, eight offices, and 25 
vehicles that were reportedly owned by Ablyazov and other BTA top 
managers. 
 
HOAGLAND