Astana Finance, the last of a quartet of Kazakh financial services providers to restructure its foreign debt, has shocked senior creditors with its latest write-off proposals.
The terms Astana Finance proposed in August would force Eurobond holders to accept an 80% haircut on principal and accrued interest on roughly $1.2 billion-worth of international debt, while they would receive zero-coupon 2016 notes for the remaining 20% balance.
Andre Andrijanovs, fixed-income analyst at emerging market debt trading specialist Exotix in London, says that the latest proposal means Eurobond holders can expect a cash return which represents a net present value offer of only 6% of their original investment, compared with the 16% that Astana Finance offered in December 2010 an offer that was rejected by creditors. Andrijanovs describes the latest offer to senior creditors as "exceptionally poor".
On the other hand, he says the offer gives trade finance creditors, especially government-sponsored export credit agencies (ECAs), preferential treatment. ECAs, with about $300 million of claims, will not suffer any haircut and will receive a 10-year, 1.5% coupon bond for settlement, which Andrijanovs estimates is a net present value of around 30% of par of the initial claim. ECA creditors are also being offered 100% equity in Astana Finance Leasing, which Andrijanovs says is the holdings only decent asset.
"Samruk-Kazyna decided it is worth keeping the ECAs happy and to pick a fight with other creditors who missed their chance to take the 16 points in cash offered in December"
Senior creditors for their part will receive almost 100% of the equity of Astana Finance. However, unlike in the December 2010 offer, sovereign wealth fund Samruk-Kazyna, which now controls Astana Finance, has refused to inject cash into it to help it repay creditors, meaning that there is a strong possibility that it will not survive through to 2016 when the zero-coupon notes mature.
"Samruk-Kazyna decided it is worth keeping the ECAs happy and to pick a fight with other creditors who missed their chance to take the 16 points in cash that Astana Finance offered in December 2010," says Andrijanovs.
Alexey Bulgakov, fixed-income analyst at Russian investment bank Troika Dialog, takes a similarly dim view of the latest offer. "The very poor proposal reflects the visible change in the governments stance toward restructuring and the rehabilitation process of failed local banks following the change of Samruk-Kazynas management earlier this year," he says.
He adds: "In the absence of external support, we do not think that Astana Finance will remain around for long after the completion of restructuring, so the only reason that bondholders might be willing to accept the proposal would be to try to sell the restructured bonds on to a bigger fool once the paper becomes tradable. The absence of any near-term cash component makes participation in the suggested exercise rather pointless for bondholders, so the liquidation of the company is quite likely."
The revised terms on the Astana Finance debt restructuring came in the wake of an out-of-court settlement between the Kazakh lender and Barclays in early July over a disputed credit default swap contract. Barclays had claimed $66 million plus interest in relation to a CDS contract between itself and Astana Finance. Astana Finance launched a counterclaim.
Marchenko maintains that international investors should have been prepared to take the losses
However Astana Finance announced later that it had reached a settlement with Barclays under which both Barclays claim and the companys counterclaim were settled for nil.
"The Barclays agreement was seen as implying that there was a desire to come to mutually acceptable solutions relating to outstanding debt issues," says Andrijanovs. "Therefore the latest restructuring proposal from Astana Finance came as a genuine bombshell and senior debt creditors are up in arms about it."
With senior creditors almost certain to reject the latest proposals Andrijanovs says it is possible that negotiations will drag on. "It doesnt look as if there will be any swift resolution."
He adds that some Kazakh entities might find borrowing in the international capital markets more difficult as a result of the dispute. "The major Kazakh banks and corporates will always be able to fund themselves internationally, but in the short to medium term the Astana Finance restructuring will likely affect second-tier banking and corporate names looking to source overseas money in terms of the ease of market access and the pricing they can expect to achieve."
While Kazakhstans central bank governor Grigoriy Marchenko has always maintained that international investors that sought profitable exposure to Kazakhstan through market-based instruments such as Eurobonds should always have been prepared to take the losses associated with market-based solutions such as debt restructurings, Andrijanovs argues that the two-year saga surrounding Astana Finance is as much about "oligarch risk" as "market risk" given that Astana Finances former owner is a politically well-connected businessman.