Kazakhstan: BTA restructuring terms surprise on upside

Bonds rise on announcement; Recovery-note holdouts threaten resolution

The release of better-than-expected terms for BTA’s latest restructuring sparked a sharp rally in the Kazakh lender’s senior notes last month. Even so, analysts warned that minority holdouts might yet prevent a speedy resolution to the process.

Under the terms of the proposal, released on October 3, holders of BTA’s $2.25 billion 2018 senior notes would receive $89 million of 5.5% 10-year paper and $958 million in cash. That equates to a haircut of around 55%, according to specialist frontier-market investment bank Exotix, well below the 80% level expected by the market.

Holders of the bank’s original issue discounts (OID) – mainly export credit agencies and trade finance creditors – would fare even better, getting $600 million of the new bond issue and taking a haircut of just 35%.

BTA’s first deputy chairman, Askhat Beisenbayev
BTA’s first deputy chairman, Askhat Beisenbayev
"The settlement we have ended up with will be widely recognized as fair and shows we adhere to international standards and that, within the current constraints, we have tried our best to restore market confidence," says BTA’s first deputy chairman, Askhat Beisenbayev.

Nurlan Ashinov, banking analyst at local investment bank Visor Capital, agrees that restoring investor confidence has been a priority for the Kazakh authorities. "The government clearly wants to maintain its good reputation in front of the investor community and has made an effort to offer favourable terms to bondholders," he says.

Preliminary agreement to the proposals has been secured from the OID creditors and the majority of bondholders – Nomura International being the only notable holdout – but problems could yet arise with the bank’s recovery notes. Holders of these instruments, which have a nominal value of $5.12 billion, will receive just $660 million in cash and $61 million in bonds – a haircut of around 85%.

"Some of the recovery-note holders are not too happy with the deal that they received because technically they could have received a pari passu treatment with all other senior creditors but they received a much higher haircut than the 2018 bondholders," says Andre Andrijanovs, a corporate strategist at Exotix.

BTA had been hoping to complete its restructuring by the end of the year but the process could be subject to further delays if a quarter of recovery-note holders refuse to approve the proposals.

That looks more likely after the announcement on October 18 that an ad hoc group of international banks, hedge funds and pension funds had been formed, representing more than 25% of the recovery-note investor base.