ASTANA/LONDON Kazakhstan's sovereign wealth fund has rescued the country's No.3 bank for the second time in as many years, forging a deal to cut the bank's $11.2 billion of debt that will see its majority stake rise and creditors lose less than feared.
The deal triggered a rally in the heavily discounted bonds of the bank - BTA BTAS.KZ - as creditors will recover more of their outlay than seemed likely when BTA defaulted in January.
BTA was the largest of Kazakhstan's banks to default in 2009 after the financial crisis struck Central Asia's largest economy and laid bare the banking sector's exposure to bloated real estate markets and its over-reliance on external funding.
In its first restructuring in 2010, BTA cut its net debt by two-thirds to $4.2 billion in a deal that installed the wealth fund, Samruk-Kazyna, as an 81.5-percent shareholder.
The fund failed, however, to find a buyer for its stake and later upset creditors who had expected more tangible support. It did not guarantee BTA's debt and the bank, plagued by persistent bad loans, defaulted this year on a $2.1 billion bond due 2018.
The bond, itself a product of the previous restructuring, jumped at least 10 cents to more than 35 cents on the dollar after Wednesday's deal was announced. It had traded as low as 16 cents on the dollar in early September.
One investor, who declined to be identified, said the terms of the deal implied creditors would be asked to write off around 55 percent of their investments, depending on the paper held.
"The terms are so favorable to investors, relative to expectations, that there is no reason for anyone not to accept it," said Richard Segal, analyst at Jefferies. "Not only that: it's mostly cash."
The deal includes a $1.59 billion subordinated loan for BTA from the wealth fund.
Every member of a creditors' committee except Nomura International agreed to a package which will include some cash for creditors and new notes with a nominal amount of $750 million.
The notes would have a semi-annual coupon of 5.5 percent per year and mature in 2022, BTA said in a statement. Chief Executive Yerik Balapanov said he hoped the restructuring would be completed by the end of this year.
Senior noteholders would receive $957.8 million in cash and $88.8 million of new notes, BTA said.
Holders of recovery notes issued to some creditors during the previous debt restructuring - which were supposed to pay out whenever BTA recovered a certain level of lost assets - would get $660.2 million in cash and $61.2 million of new notes.
BTA is pursuing its former owner, fugitive billionaire Mukhtar Ablyazov, whom it accuses of embezzling at least $5 billion from the bank before he fled Kazakhstan the same year.
An outspoken critic of Kazakh President Nursultan Nazarbayev, Ablyazov was granted political asylum in Britain and has said the charges are politically motivated.
Fraud claims were due to be heard in the High Court in London in November, but Ablyazov is believed to have fled Britain in February after being sentenced to 22 months in jail for contempt of court. His current whereabouts are unknown.
In a letter to shareholders, BTA said Samruk-Kazyna would convert deposits into equity at a sufficient level to achieve the minimum 10 percent Tier 1 capital ratio required under Basel II guidelines.
The bank did not say what the wealth fund's stake would be after the latest restructuring.
Data from Kazakhstan's financial regulator showed BTA had a negative capital - where liabilities exceed available assets - of $8.2 billion as of September 1. The bank announced in March that it would cut around 1,500 jobs, or 25 percent of its workforce, in an attempt to reduce losses.
(Additional reporting by Mariya Gordeyeva; Editing by Mark Potter)