Kazakh-owned Alliance Bank bonds tumble on fear of second restructuring

LONDON Tue Oct 8, 2013 12:10pm EDT

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LONDON Oct 8 (Reuters) - Bonds in Kazakhstan's Alliance Bank tumbled almost 10 cents on the dollar on Tuesday to record lows on fears the lender, owned by the country's sovereign wealth fund, is headed for its second debt restructuring in three years.

Alliance, owned 67 percent by sovereign fund Samruk Kazyna, was one of several banks in oil-rich Kazakhstan to default on debt after the 2008 financial crisis, and another Samruk-owned bank, BTA, has already restructured a bond it issued after its first 2009 default.

Fears are growing that Alliance will have to do the same with its 2017 $615 million bond, which is trading around 40 cents on the dollar, with a yield of over 70 percent.

Officials at Alliance could not be reached for comment.

Alliance posted a 4.3 billion tenge ($28 million) net pre-impairment loss for 2012 while Fitch estimated earlier this year the bank's debt repayments would amount to almost $500 million between 2014 and 2017 while liquid assets were just over $400 million.

The Kazakh banking sector suffers high levels of problem loans which analysts blame on a weaker than expected economic recovery since the financial crisis.

As recently as May, the $615 million bond, issued in 2010 as part of a debt restructuring deal, was quoted at 93 cents, while a month ago it was at 69 cents.

"The expectation is they may do a second restructuring round to restore their capital adequacy ratio. A coupon was due (last week) and they did pay it but they must have used most of their cash on it," a London-based fund manager said.

Alliance's Tier I ratio, according to Basel I, rules was 2.7 percent earlier this year and its capital adequacy ratio was less than 5 percent.

The bond has been weakening ever since May, when Fitch downgraded its credit rating to CCC, noting that a new restructuring round was a "real possibility".

One investor attributed the latest steep drop in prices to a big fund liquidating its position.

"It's pretty clear that recapitalisation would involve restructuring the various obligations," the investor said.

There has also been uncertainty about the future ownership of the bank. Samruk-Kazyna is trying to sell its stakes in Kazakh banks.

A senior government official told Reuters that a decision on selling a controlling stake in Alliance would be taken in the next few days, naming Kazakh billionaire Bolat Utemuratov as the probable buyer.

Utemuratov is dubbed a "grey cardinal" in local media for his connections with Kazakhstan's political and business elite. His office was not available for comment. ($1 = 154.1800 Kazakhstan tenges) (Reporting by Sujata Rao in London and Masha Gordeyeva in Almaty; Editing by David Cowell)

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