Kazakh BTA bondholders may force $8 bln debt repayment

LONDON Thu Jan 12, 2012 1:31pm EST

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LONDON Jan 12 (Reuters) - Holders of Kazakh bank BTA's Eurobonds said on Thursday they are considering forcing early repayment on BTA's senior debt if the bank goes into default next week, potentially allowing other creditors to demand repayment of up to $8 billion.

They were speaking to Reuters a day after Anvar Saidenov, chairman of BTA which is 81.5 percent owned by the country's sovereign wealth fund Samruk-Kazyna, effectively quashed any hope that $160 million in coupons, originally due Jan. 3, would be paid within a 10-day grace period.

Creditors are enraged they are being asked to agree another debt restructuring after an initial round in 2010 cut BTA's debt by two-thirds to $4.2 billion. They say the bank and its majority owner are unwilling, rather than unable to pay.

Saidenov did not say what kind of writedown creditors may have to take but noted BTA's $5 billion capital shortfall by end-2012. That implies the haircut will be substantial.

"If the default crystallises, the next step would be to formalise a creditor committee and force an acceleration," said one member of an ad hoc group of creditors speaking on condition of anonymity.

"We are organised and can move very quickly."

Another member of the group said the bank was leaving little alternative to investors other than to fight for their cash, given the impending default.

"It seems clear they are taking a very hostile stance, a stance that makes it very difficult to negotiate in good faith. They are leaving very few options for investors."

The ad hoc group of bondholders also told BTA they may take legal action in a Dec. 30 letter sent via law firm Dewey & LeBoeuf.

The 2018 bond prospectus states that at least a fifth of debt holders must participate in the action to accelerate bond payments. But the ad hoc creditor group, members of which spoke to Reuters, claims to own over a quarter of the outstanding bonds.

The assumption has been that a BTA Eurobond default would allow other creditor classes also to call in debt they are owed. The biggest single one would be Recovery Notes (RN), which have a reference or par value of $5.2 billion and were issued to some creditors during the 2010 restructuring.

Other outstanding bonds total $3 billion.

CROSS ACCELERATION, NOT CROSS DEFAULT

But BTA's lawyers left recovery note investors dismayed at Wednesday's meeting, telling them a Eurobond default would not automatically trigger default across other assets. Holders of RNs for instance would be able to accelerate only if any other debt repayments are called in, they said.

An acceleration of RN notes reduces senior bondholders' incentive to accelerate, because triggering $5.2 billion in RN payments would drastically slash asset recovery volumes.

"The recovery notes' ability to accelerate looks weaker than originally thought," Andre Andrijanovs, an analyst at Exotix said in a note. "(BTA's lawyers) White & Case made the point that it is in the interest of senior creditors not to accelerate so that Recovery Notes do not get their right to accelerate."

Recovery Notes have fallen further after BTA's investor meeting, quoted at 3 cents on the dollar, analysts said. The 2018 bond also hit record lows of 15 cents on the dollar on Thursday.

BTA warns that without a compromise it faces insolvency, potentially leaving investors with no recovery. But some creditors counter that they will lose little by forcing acceleration, having already taken a hefty haircut during the 2010 restructuring.

"They are asking creditors to bear the burden," one bondholder said. (Reporting by Carolyn Cohn and Sujata Rao; editing by Ron Askew)

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