Western experts praise restructure of Kazakh bank
08.10.2009. Category:Kazakhstan
Alliance deal a first for Kazakhstan
The Kazakh government this week secured a deal with creditors to restructure Alliance Bank, in an innovative move allowing it to emerge as a going concern from the credit crisis.
People familiar with the situation said the restructuring plan, which involves creditors writing off part of Alliance's $4bn gross debt in exchange for a stake in the bank's equity has the backing of lenders representing about a third of its debt, including Calyon, JPMorgan, ING Asia and Sumitomo Mitsui.
"It is a major step in the restructuring for Alliance and for the system as it is the first bank to restructure as a going concern without introducing conservation [taking it into state control]," said Marcia Favale-Tarter, adviser to Samruk-Kazyna, Kazakhstan's sovereign wealth fund, and an independent adviser to Alliance and BTA, the country's biggest bank.
The deal for Alliance, based in the Kazakh capital of Astana, was struck almost exactly a year after Kazakhstan's banking system became caught up in the global credit crisis.
Kazakh banks had borrowed heavily to fund an oil-driven domestic consumer boom but were stranded with $45bn of foreign debt when the US subprime crisis erupted.
In November 2008, Samruk-Kazyna injected $3.4bn into four "systemic" banks, taking blocking minority interests in Halyk Bank, Kazkommertsbank and Alliance and full control of BTA, in a move contested by the bank's former shareholders.
The bail-out, modelled on UK and US bank rescue plans, was part of a $15bn government package designed to prevent economic growth in the oil-rich central Asian country grinding to a halt.
Kazakhstan enacted new legislation, drafted with an international legal team led by White & Case, to limit creditors' ability to seek litigation or block restructuring agreements - a threat that stymies many emerging market debt negotiations.
As with a UK scheme of arrangement, the new law requires only two-thirds of the bank's creditors to accept a restructuring for it to be legally binding on all creditors. It is also designed to be recognised under international rules for cross-border insolvency recognitionto reduce the threat of the restructuring being derailed by foreign litigation.
The Alliance agreement is the first bank restructuring under the new arrangements. And it is unusual in other respects - namely, as an example of a bank that is systemically important in its local market but that has been restructured as a going concern, while imposing haircuts and a debt-for-equity swap on creditors.
While debt-for-equity swaps have long been commonplace in the non-banking sphere, they have not traditionally been used in the banking world in relation to systemically important entities.
Instead, policymakers faced with bankrupt banks have tended to either leave them to default completely (as in the case of Lehman Brothers) or used taxpayer money to bail them out (as with almost every other bank after Lehman's collapse).
Seeking agreement to impose radical haircuts across the board, in other words, has not been tried - partly because regulators round the world assumed it would be too difficult to achieve.
"In the post-Lehman era we have only really seen banks fully bailed out by governments or liquidated . . . there are no real previous models on which we can make comparisons where you have a joint bailout between a government and creditors," said one person close to the case. "[With this deal] . . . we are in terra incognita."
The Alliance deal still requires approval from two-thirds of all creditors. Negotiations continue over the restructuring of BTA, where there is a multibillion-dollar gap between what creditors and government believe should be written off of its $10.3bn gross debt.
"I don't believe what we are trying to achieve in Kazakhstan in terms of restructuring the debt of a bank on the basis it emerges as a going concern, has been done anywhere else in the world," said Francis FitzherbertBrockholes, partner at White & Case.
BTA and Alliance have been advised by Lazard and Lovells, the UK law firm, has been appointed to hunt for missing assets at BTA amid allegations of fraud against the bank's former management.
The new Kazakh regime also includes an approach for handling trade finance liabilities, often considered sacrosanct.
It defines strict criteria for the lines to be left unimpaired by the restructuring, in a bid to reduce the haircut for other creditors, according to people familiar with the situation.
Kazakhstan's regulator has warned it would rescind BTA's banking licence if a December 7 deadline for agreeing restructuring terms was not met.
Milena Ivanova Venturini, analyst at Renaissance Capital, said BTA's creditors were likely to reach a compromise with Samruk Kazyna. "The creditors don't have a strong position. BTA will go bankrupt if they don't agree and they will get nothing," she said.
Source; Financial Times
The Kazakh government this week secured a deal with creditors to restructure Alliance Bank, in an innovative move allowing it to emerge as a going concern from the credit crisis.
People familiar with the situation said the restructuring plan, which involves creditors writing off part of Alliance's $4bn gross debt in exchange for a stake in the bank's equity has the backing of lenders representing about a third of its debt, including Calyon, JPMorgan, ING Asia and Sumitomo Mitsui.
"It is a major step in the restructuring for Alliance and for the system as it is the first bank to restructure as a going concern without introducing conservation [taking it into state control]," said Marcia Favale-Tarter, adviser to Samruk-Kazyna, Kazakhstan's sovereign wealth fund, and an independent adviser to Alliance and BTA, the country's biggest bank.
The deal for Alliance, based in the Kazakh capital of Astana, was struck almost exactly a year after Kazakhstan's banking system became caught up in the global credit crisis.
Kazakh banks had borrowed heavily to fund an oil-driven domestic consumer boom but were stranded with $45bn of foreign debt when the US subprime crisis erupted.
In November 2008, Samruk-Kazyna injected $3.4bn into four "systemic" banks, taking blocking minority interests in Halyk Bank, Kazkommertsbank and Alliance and full control of BTA, in a move contested by the bank's former shareholders.
The bail-out, modelled on UK and US bank rescue plans, was part of a $15bn government package designed to prevent economic growth in the oil-rich central Asian country grinding to a halt.
Kazakhstan enacted new legislation, drafted with an international legal team led by White & Case, to limit creditors' ability to seek litigation or block restructuring agreements - a threat that stymies many emerging market debt negotiations.
As with a UK scheme of arrangement, the new law requires only two-thirds of the bank's creditors to accept a restructuring for it to be legally binding on all creditors. It is also designed to be recognised under international rules for cross-border insolvency recognitionto reduce the threat of the restructuring being derailed by foreign litigation.
The Alliance agreement is the first bank restructuring under the new arrangements. And it is unusual in other respects - namely, as an example of a bank that is systemically important in its local market but that has been restructured as a going concern, while imposing haircuts and a debt-for-equity swap on creditors.
While debt-for-equity swaps have long been commonplace in the non-banking sphere, they have not traditionally been used in the banking world in relation to systemically important entities.
Instead, policymakers faced with bankrupt banks have tended to either leave them to default completely (as in the case of Lehman Brothers) or used taxpayer money to bail them out (as with almost every other bank after Lehman's collapse).
Seeking agreement to impose radical haircuts across the board, in other words, has not been tried - partly because regulators round the world assumed it would be too difficult to achieve.
"In the post-Lehman era we have only really seen banks fully bailed out by governments or liquidated . . . there are no real previous models on which we can make comparisons where you have a joint bailout between a government and creditors," said one person close to the case. "[With this deal] . . . we are in terra incognita."
The Alliance deal still requires approval from two-thirds of all creditors. Negotiations continue over the restructuring of BTA, where there is a multibillion-dollar gap between what creditors and government believe should be written off of its $10.3bn gross debt.
"I don't believe what we are trying to achieve in Kazakhstan in terms of restructuring the debt of a bank on the basis it emerges as a going concern, has been done anywhere else in the world," said Francis FitzherbertBrockholes, partner at White & Case.
BTA and Alliance have been advised by Lazard and Lovells, the UK law firm, has been appointed to hunt for missing assets at BTA amid allegations of fraud against the bank's former management.
The new Kazakh regime also includes an approach for handling trade finance liabilities, often considered sacrosanct.
It defines strict criteria for the lines to be left unimpaired by the restructuring, in a bid to reduce the haircut for other creditors, according to people familiar with the situation.
Kazakhstan's regulator has warned it would rescind BTA's banking licence if a December 7 deadline for agreeing restructuring terms was not met.
Milena Ivanova Venturini, analyst at Renaissance Capital, said BTA's creditors were likely to reach a compromise with Samruk Kazyna. "The creditors don't have a strong position. BTA will go bankrupt if they don't agree and they will get nothing," she said.
Source; Financial Times