Whether international lenders will agree to restructure the debts of two of Kazakhstan’s largest banks is still “a big if”, the central bank governor Grigori Marchenko said yesterday.
And the success of the Kazakh banking sector’s two-year struggle to reduce its foreign debt burden hinges on the outcome, Marchenko told Emerging Markets in an interview.
The talks on BTA and Alliance banks are threatened with derailment, Marchenko said, because not all the parties involved – and particularly not investors who had bought their credit default swaps (CDS) contracts – wanted to reach a successful outcome.
“It’s quite clear that more than 98% of people who are buying CDS do not have underlying securities, because they simply do not exist,” he said. “It has been a purely speculative market. The problem with that is that the incentive structure has changed.
“It’s quite sad, because actually two institutions created this whole situation.” One of these, Morgan Stanley, was “paid once because a payment was due”, and “then accelerated another payment which was due in 2013”, Marchenko said. He did not name the other.
Marchenko said the restructuring talks were not only putting the banking sector at risk but also unfairly impacting Kazakhstan’s sovereign rating. “The rating agencies are also looking at sovereign debt issues through the prism of the resolution with BTA and Alliance. I think it is grossly overblown.”
Moody’s on Tuesday downgraded Kazakhstan’s local currency government rating to Baa2 from Baa1 and changed the outlook to “negative”.
Plans for restructuring BTA’s $15 billion debt pile, which was already underway, were tripped up in April by accelerated payment requests from Morgan Stanley and the unnamed international creditor. BTA then imposed a standstill on principal payments, triggering cross-defaults on the banks’ eurobonds.
The variety of creditors and financial instruments – from syndicated loans to trade finance facilities – affected by BTA’s restructuring plans is one of the main stumbling blocks highlighted by lenders involved in the discussions and by analysts.
Marchenko stressed that a successful resolution to Alliance and BTA’s debt restructurings could mean that Kazakhstan’s banks would be over the worst by August this year.
“If – and it’s a big if – this whole issue with BTA and Alliance is resolved”, after that “quarterly repayment and servicing is fairly low and clearly manageable”, Marchenko said. BTA has been courted by what Marchenko described as “strategic investors”, including Russia’s Sberbank.
Kazakhstan’s state-owned fund Samruk-Kazyna acquired 78% of the already troubled BTA in February. Sberbank was involved in talks about BTA in February, broke them off, but returned this month and is since reported to have carried out due diligence.
Marchenko welcomed the prospect of Sberbank as an “acceptable” suitor for BTA, particularly as it had showed an interested in picking up the banks’ external assets across Armenia, Georgia and Ukraine. But he warned that any takeover proposal was again likely to hinge on BTA’s debt restructuring being resolved first. “This whole issue with BTA and Alliance is a balancing act, and it’s not over yet.”