VZCZCXRO7840
OO RUEHIK
DE RUEHTA #2258/01 3640827
ZNR UUUUU ZZH
O 300827Z DEC 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7128
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE 2305
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1667
RUEHKO/AMEMBASSY TOKYO 2370
RUEHUL/AMEMBASSY SEOUL 1296
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1862
RUEKJCS/SECDEF WASHDC 1712
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 2657
RUEHNO/USMISSION USNATO 2950

UNCLAS SECTION 01 OF 03 ASTANA 002258 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS USTDA AND OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT:  KAZAKHSTAN:  BTA BANK RESTRUCTURING UPDATES 
 
ASTANA 00002258  001.2 OF 003 
 
 
REFTEL:  ASTANA 1626 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (U) SUMMARY:  Despite fears and concerns about the progress and 
results of BTA restructuring talks, BTA bank management signed the 
"Principal Commercial Terms Sheet" on December 7 in London. 
Creditor-agreed options include a special provision for trade 
finance, which local experts regard as an export-credit-agency 
victory.  BTA bank CEO Anvar Saidenov asserted that "the period of 
ambiguity for the bank is in the past."  BTA Bank now must submit 
restructuring plans for Creditors' Committee approval before March 
23, 2010.  END SUMMARY. 
 
SAIDENOV OPTIMISTIC 
 
¶3.  (U) On December 22, BTA bank's press service reported the 
successful completion of the main stage of restructuring talks due 
to the signature of an outline of "Principal Commercial Terms" in 
London on December 7.  Anvar Saidenov, BTA bank CEO, asserted that 
this document, which demonstrates "absolute consent on all economic 
terms between the bank and its creditors is a great stride toward 
the restoration of the financial institution."  Saidenov further 
stated that "the period of ambiguity for the bank is in the past." 
 
 
$7.7 BILLION IN WRITE-OFFS 
 
¶4.  (U) Under the restructuring plan agreed on December 7, creditors 
can choose from a menu of financial instruments in exchange for 
their existing debt claims.  The plan, with suggested creditor 
options, should be submitted to the Creditors' Committee for 
approval by March 23, 2010. 
 
¶5.  (U) As part of the plan, BTA bank and the Creditors' Steering 
Committee have agreed to write off $7.7 billion in debt and 
interest.  Upon completion of restructuring, BTA's debt liabilities 
should consist of $4.564 billion, of which $797 million will be 
subordinated debt.  Visor Capital estimates that this offer reduces 
write-offs by $1.4 billion compared to earlier proposals due to a 
reduction in provisioning and relief on required capital levels. 
Debt reduction and the conversion of part of the debt into the 
capital shares should generate $11.13 billion of additional 
regulatory capital.  Samruk-Kazyna (SK), as a main shareholder of 
the bank, will convert approximately $4.5 billion of BTA bank's debt 
into capital shares.  After restructuring, SK will own approximately 
85% of the bank's shares, with creditors holding the rest. 
 
A FEW DAYS BEFORE SIGNATURE 
 
¶6.  (SBU) On December 4, Directors of the Investors Relations and 
Financial Institutions Department and the Middle East and Asia 
Department of BTA bank, Janelle Utemuratova and Nariman 
Zharkinbayev, argued to representatives of the U.S. Treasury 
Department, OPIC, and EconOff that BTA's restructuring is much more 
complicated than that of Alliance Bank.  They explained this 
complexity resulted from BTA's greater number of foreign 
subsidiaries and repeated exercises of due diligence at the 
insistence of the Creditors' Committee.  They asserted the due 
diligence yielded identical results but slowed down the 
restructuring process. 
 
¶7.  (SBU) In contrast to Alliance Bank, BTA bank's initial 
restructuring proposals did not contain a special option for trade 
finance despite its importance to BTA.  Because "BTA bank used to 
play a big role in this market and covered around 40% of total trade 
finance in Kazakhstan," she said, "BTA's approach to trade-finance 
restructuring will definitely impact relations with Export Credit 
Agencies (ECAs)."  Utemuratova underlined the importance for BTA -- 
and Kazakhstani banks as a whole -- of reestablishing good relations 
with ECAs.  Although the global financial crisis has reduced trade 
 
ASTANA 00002258  002.2 OF 003 
 
 
finance's share of investment inflows, trade-finance demand remains 
high in Kazakhstan.  She argued that local money remains expensive 
and limited -- "the inter-bank market is almost dead, and the 
deposit basis is quite narrow."  As a result, Utemuratova predicted 
a separate restructuring option for trade finance. 
 
FOUR SENIOR, TWO JUNIOR DEBT RESTRUCTURING PACKAGES 
 
¶8.  (U) The signed restructuring proposal contains four packages of 
"Senior Debt" and two packages of "Junior Debt."  Senior Package 1 
covers approximately 74.8% of creditors who hold $7.7 billion in 
current debt.  Most bonds, bank loans, and a part of certain non-ECA 
trade-finance debt instruments will fall under this restructuring 
package.  It will pay $946 million in cash through the issuance of 
new eight-year debt instruments with a 70% discount on principal and 
15-year subordinated debt instruments.  Creditors also will receive 
around 8.7% of the bank's shares and 82.43% of BTA-issued recovery 
notes. 
 
¶9.  (U) 15.9% of creditors, representing $1.6 billion in 
liabilities, are expected to participate in Senior Package 2.   This 
package should address the requirements of export-credit agencies, 
government obligations, and some trade-finance liabilities.  This 
package envisages the issuance of special debt instruments -- 
"Original Issue Discount Instruments" (OID) -- with a Day-1 value of 
$763 million (or 46.6 % of current principal) and a fully accreted 
value of $1.636 billion at the end of 11 years (i.e., the full 
accreted value equals current total nominal debt).  In addition to 
OID, Package-2 creditors can access 15-year subordinated-debt 
instruments in the amount of $105 million and approximately 1.8% of 
the bank's equity and 17.57% of recovery notes.  Senior Package 2 
offers various, not mutually-exclusive, instruments to ECAs, and is 
the only package that does not contain any "haircuts" for creditors. 
 (NOTE:  Post does not know which package U.S. Export Credit 
Agencies, including the U.S. Export-Import bank, OPIC, and the U.S. 
Department of Agriculture's Commodity Credit Corporation, will be 
offered and accept.  END NOTE.) 
 
¶10.  (U) On December 22, BTA bank CEO Anvar Saidenov said that OID 
will be offered for 11 years, with a seven-year grace period. 
During the latter, the bank will pay a 3.75% per annum interest rate 
in cash.  Thereafter, it will pay a 3.2% interest rate 
semi-annually.  However, according to BTA bank, this mechanism 
remains under discussion and will be clarified in new Commercial 
Terms on January 31, 2010.  Creditors enrolled in Senior Packages 1 
and 2 also will receive some of the funds obtained by the bank 
through its collection of problem assets, including through court 
cases. 
 
¶11.  (U) Senior Package 3 will restructure current liabilities on 
trade finance in the amount of nearly $700 million.  It envisages 
the refinancing of liabilities through a new two-year Revolving 
Committed Trade Finance Facility (RCTFF).  Senior Package 4 is 
designed for Islamic banking creditors whose liabilities equal $250 
million.  This debt will be cleared with $54 million in cash (i.e., 
about 78.5% of the debt will be written off). 
 
¶12.  (U) Junior Package 1 proposes to repay the 28 billion tenge 
($186 million) currently owed to pension funds after a minimum of 20 
years.  Under Junior Package 2, holders of subordinated and 
perpetual bonds, which total $1.1 billion, will exchange their bonds 
for common shares equaling approximately 4.5% of BTA bank. 
 
AFTER RESTRUCTURING? 
 
¶13.  (U) On December 22, Chairman of the Board of BTA bank Arman 
Dunayev said that BTA bank may begin active negotiations with 
strategic investors in summer 2010.  Dunayev noted that 
Samruk-Kazyna Welfare Fund does not intend to remain a long-term 
investor.  "Immediately after settling all the issues with 
creditors, the bank may opt to sell its share.  The talks cannot be 
 
ASTANA 00002258  003.2 OF 003 
 
 
held officially, and investors cannot identify themselves unless the 
restructuring is completed.  As for Sberbank, we will continue to 
discuss its possible acquisition of the bank's share, but there is 
nothing more than that.  I believe that any strategic investor will 
wait for the outcome of the debt restructuring," Dunayev asserted. 
 
 
¶14.  (U) According to Dunaev, BTA bank will conduct an Initial 
Public Offering (IPO) in London within the next three to four years. 
 At that time, creditors could convert their debt into 
"participation notes," and become effective shareholders of BTA 
bank.  Equity-linked creditors could exchange their debt for Global 
Depositary Receipt (GDRs) or into common shares, he claimed. 
Therefore, BTA bank must conduct the IPO at a foreign exchange, 
which Dunayev argued would be the London Stock Exchange.  Further 
details on IPO-related matters are expected in the final version of 
Commercial Terms. 
 
BTA SAGA:  TO BE CONTINUED 
 
¶15.  (U) According to the local press, markets reacted positively to 
this news.  According to "Respublika" newspaper, prices for BTA 
Eurobonds, which prior to December 7 were at 20% of nominal value, 
soared to 32% of nominal value.  The forecasts of professional 
analysts, such as Visor Capital, now also are optimistic about BTA 
bonds. 
 
¶16.  (SBU) Still, local experts cautiously assess the announcements 
of BTA's top management.  Mukhamedzhan Adilov, "Respublika's" 
economic observer, asserted that the agreed "Principal Commercial 
Terms Sheet" more closely reflects the initial position of creditors 
than that of BTA bank.  Adilov further argued that export-credit 
agencies, trade-financing-debt holders, and government-related 
agencies received the most favorable restructuring conditions.  He 
alleged that subordinated-debt holders and perpetual-bonds holders, 
who will receive only 4.5% of the bank's equity, were the most 
disadvantaged.  According to Adilov, "this adventure [successful 
restructuring] will cost Kazakhstan $9-10 billion."  Because the 
"Principal Commercial Terms Sheet" is not obligatory and a more 
detailed version will replace it early next year, creditors' 
assessment of these options and their votes on proposed terms 
remains unclear. 
 
¶17.  (SBU) COMMENT:  Kazakhstani government and BTA bank optimism is 
somewhat warranted -- signature of "Principal Commercial Terms 
Sheet" is a significant step toward the completion of BTA 
restructuring.  Although the phantom of conservatorship and 
liquidation of BTA bank no longer looms on the near-term horizon, 
the restructuring process is far from complete, and the destiny of 
Kazakhstan's second largest bank remains vague.  Saidenov's claim on 
the reestablishment of BTA bank's key position in the market thus 
appears exaggerated and perhaps premature.  END COMMENT. 
 
HOAGLAND