UPDATE 1-Bondholders reject Kazakh Alliance Bank's debt restructuring offer

Thu May 29, 2014 12:03pm EDT

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By Carolyn Cohn and Sujata Rao

LONDON May 29 (Reuters) - Kazakhstan's Alliance Bank, majority owned by the country's sovereign wealth fund, said on Thursday that talks with creditors had broken down on what would be its second debt restructuring in four years.

The bank defaulted on debt in the aftermath of the global financial crisis and restructured debt in 2010 but late last year said it needed to recapitalise to restore profitability.

"Negotiations have broken down, no agreement was reached," Alliance chief executive Timur Isatayev told Reuters by telephone.

The bank met a creditor committee over the past two days and offered improved terms compared with an initial debt restructuring offer made in January, Isatayev said.

The bank's latest offer would imply a recovery rate of 40 percent, compared with an initial 30 percent offered in a debt restructuring proposal made in January.

But one creditor, who spoke on condition of anonymity, said: "The proposal that was made was way below expectations".

"Before they had offered 30 percent recovery, possibly in cash. Now they are offering 40 percent, all in new bonds. On balance it's probably worse. People are seeing it as a bit of a joke," the creditor added.

Alliance is 51 percent owned by sovereign wealth fund Samruk-Kazyna and 16 percent owned by Kazakh billionaire Utemuratov, following a sale by Samruk-Kazyna of part of its stake in recent weeks.

The banking sector of the oil-producing Central Asian nation was hard hit by the global crisis due to its heavy external borrowing and bloated real estate market.

BTA, another Kazakh bank controlled by Samruk, has also restructured its debt twice.

"Creditors will be looking for 50-60 percent - 50 percent was paid by BTA which was in a much worse condition," the creditor added.

"Samruk has to step in and be more proactive."

The creditor committee includes JP Morgan and funds VR Capital, Lim Advisers and Greylock Capital, Isatayev said.

Alliance's dollar bond due 2017 is trading around 50 cents in the dollar, Thomson Reuters data shows. Analysts said, however, that prices were likely to fall to reflect the breakdown in talks. (Editing by Ruth Pitchford)

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