Edited by Ben Edwards
A sleight of hand
What is Bankers Trust up to in the Czech Republic? In December, the fledgling Czech capital market saw its biggest-ever transaction when the US investment bank agreed to pay Kr6.7 billion ($252 million) for 40% stakes in two big Czech investment funds controlled by Ceska Sporitelna, the country's largest savings bank. Not all, however, is as it seems.
Bankers Trust bought shares in the Cesky SPIF and Vynosovy SPIF funds, which are managed by Ceska Sporitelna's investment subsidiary, SIS. The bank paid for the shares by issuing two sets of zero-coupon koruna-denominated five-year bonds. The bonds' value at the time of the transaction totalled some $200 million.
Under the terms of the deal, Ceska Sporitelna will retain voting rights over all but 10% of the shares sold, and will reap all dividends from the shares while they are held by Bankers Trust. The American bank has an option to sell back its stakes at any time within the next five years for an undisclosed strike price
However, Jane Sommers-Kelly, Bankers Trust's director in Prague, says the strike price is "usually the price originally paid".
Sommers-Kelly says that Bankers Trust "is not in this to become fund managers; it's more of an equity play on our part and a capital injection for Ceska Sporitelna".
The sale was more or less forced upon Ceska Sporitelna as a result of its estimated Kr4 billion loss on buy-back obligations to the two funds' shareholders.
SIS offered investors a Kr10,000 loan plus interest in exchange for 20 shares in the fund, with an option to keep the loan and give up their rights to the shares of the fund.
It was an option many people exercised, leaving the bank, through SIS, owning 64% in each of the two funds. Under Czech law, SIS may not hold more than a 10% shareholding in its own funds.
The bank was, however, under no immediate pressure to sell its stakes. Early last year, the Czech central bank set Ceska Sporitelna an April 1997 deadline to divest itself of its excess holdings.
Vladimir Jaros, head of research at Wood & Company, a Prague-based brokerage house, says the Ceska-Bankers Trust deal "is not seen as a real transaction. It's more of a paperwork and accounting trick for the bank to defer its losses".
For Bankers Trust, however, the deal offers secondary trading opportunities. "Over time, we'll educate international investors about the Czech market and sell pieces off," says Sommers-Kelly. "We have five years to benefit from the stock market increase. No-one else was willing to take a five-year view, and in that regard this is positive for the Czech market."
In order to cover its bond liability, Bankers Trust will "manage the risk by going long on Czech koruna by buying koruna fixed-income investments", says Alexander Seippel, a vice-president at Bankers Trust in London.
"We are already a very active trader in Czech bonds and T-bills," he says, "and deal in hundreds of millions of dollars worth."
The Cesky SPIF fund portfolio concentrates on small and medium-sized Czech firms. As of December 8, 91% of its assets were in shares, 3% in bonds and 6% in cash.
The Vynosovy, or growth, fund concentrates on major companies and blue-chip shares in the Czech Republic: as of December 8, it held 59% in shares, 7% in bonds and 34% in cash.
In a separate development, notes Seippel, Bankers Trust has been mandated by Ceska Sporitelna to lead manage a $30 million global depository receipt issue during the first quarter of 1996. Joe Cook
KAZAKHSTAN
USExim cans the Kazakhs
USExim Bank has decided to pull out of Kazakhstan over the failure to repay a $5 million short-term loan.
Relations between the central Asian republic and the American foreign trade bank turned sour because the latter presumed the loan was government-guaranteed while the former says it is not.
A USExim spokesperson says operations in the Kazakh capital Almaty have been suspended. "All I can say is that we have not been repaid," he says.
The loan, agreed at the beginning of 1994, was made for a canning factory which was to be fitted out with state-of-the-art US machinery.
Oscar Nasenov, deputy chairman of the government-owned Kazakh Exim Bank, says: "We received a fax from USExim saying 'please pay'. But we don't think we should." It appears the loan was never directly guaranteed by the government but instead by Alem Bank, one of Kazakhstan's largest commercial banks.
Up to two years ago, Alem Bank might have been considered a government institution. It was 67%-owned by the government, so USExim probably assumed its guarantee was fairly solid. Accordingly, it accepted its backing for the $5 million canning factory loan.
However, with the loan now in default, the Kazakh government says Alem Bank is a private joint-stock company in which it has no interest.
Why? Because in 1994 it set up Kazakh Exim Bank with a clean balance-sheet, and moved the bulk of state-guaranteed loans with it. One banker familiar with Kazakhstan estimates that these loans are worth some $100 million. As far as Kazakh Exim is concerned, only it can offer government guarantees and the canning factory loan is not on its list.
Nasenov says: "In 1994 we informed all our lenders that all projects should be guaranteed by Kazakh Exim Bank. But USExim did not resubmit its project for signing."
This leaves the defaulted loan in a curious position since the documentation carries the guarantor Alem Bank. Nasenov is definite about this point: "The client defaulted and Alem Bank should pay."
The original loan was made by Bayerische Vereinsbank, and guaranteed by USExim bank. Nasenov maintains that the German bank opened the letter of credit to the exporter without the approval of the government.
Why the recourse to government guarantees? Probably because the canning factory is eight months behind its opening schedule, as a result of machinery arriving late. The Kazakhs blame a Russian shipping company for this.
The present fracas is all the stranger given that the reason for creating Kazakh Exim Bank was to clean up the government's financial affairs. And the new chairman of the bank, Beyseenbay Iztelevov, is said by one seasoned Kazakh-watcher to represent "a new open-minded approach and respect for contracts". Steven Irvine
