BTA Bank and Mukhtar Ablyazov Nationalisation and restructurisation
In 1998, as a result of privatisation, the bank's shares in the value of 72 million dollars were bought by a businessman, Mukhtar Ablyazov, who, in 2005, became the Chairman of the Board of Directors of the bank, and developed a strategy for its development. During Ablyazov's leadership, BTA Bank reported dynamic growth, and became one of the most promising banks in the CIS. By 2008, BTA Bank had grown to become the leader in the emerging markets, the fourth largest bank among the CIS countries, and one of the three fastest-growing banks in the world. In 2007, ‘Euromoney’ magazine named BTA Bank the best bank in Central Asia and in 2008 BTA Bank received the Global Finance award.
At the same time, between 2006 and 2008, Mukhtar Ablyazov had been pressured by the President of Kazakhstan, Nursultan Nazarbayev, to transfer 50% of shares of BTA Bank to the state. Ablyazov refused to transfer the bank's assets into the control of Nazarbayev, and, as a result, in February 2009, the bank was nationalised under the pretext of the need to save the banking sector from bankruptcy.
In 2008, BTA Bank was the largest commercial financial institution in Kazakhstan, with internal reserves allowing for cooperation with foreign and domestic owners of the shares. At the same time, BTA Bank was the largest creditor of the Kazakh economy – the bank owned about 30% of all the loans granted to legal entities. The control over BTA Bank has been adopted by the National Welfare Fund ‘Samruk-Kazyna’, a holding company owned entirely by the state, despite the healthy condition of the bank.
On 23 October, 2009, a few days before the announcement of the rescue plan for the banking sector, President Nazarbayev approved a new law, which broadened the scope
- The national wealth fund and stock company, the owner of majority of economic sectors in Kazakhstan
- The state is the only shareholder in this fund
- Timur Kulibayev, Nazarbayev’s ex-son-in-law, was the president of this fund
of AFS (Agency for Financial Supervision) and governmental powers in the sphere of financial activities. The new law legitimised the option of violent access of the state to the capital of a financial institution, in cases where the situation of the institution (according to the authorities) was deteriorating. The law also provided for criminal liability of the management staff, if the AFS considers their work to be inappropriate.
On 28 October, 2009, at the meeting of the Cabinet of Ministers, the Prime Minister of Kazakhstan, Karim Masimov, proposed that the four banks, including BTA Bank, which co-created the Kazakh banking system, carry out government investments through the National Welfare Fund ‘Samruk-Kazyna’. ‘Samruk-Kazyna’ is a holding company, established on 13 October, 2008, which manages state-owned assets of the Republic of Kazakhstan. Nazarbayev's son-in-law, Timur Kulibayev, was appointed President of the Fund. The official purpose of the national investment was to inhibit the effects of the global financial crisis.
The emergency action plan was developed based on the recommendation of the AFS. The plan provided for funding of the share capital of banks through the issuance of shares. As a result of this operation, according to the plan, the state was supposed to own no more than 25% of shares of the four banks.
On 29 October, 2008, at the meeting with the Prime Minister, Mukhtar Ablyazov responded positively to the proposals for funding the share capital of BTA Bank, expecting that cooperation with the Fund would extend the credit offer of the bank and stabilise its economic situation.
The Kazakh authorities claimed that when there was no longer a need for state help and after financial system had stabilised, the banks would return to their original form. During the financial crisis, these measures were presented as the best solution to stop the inflationary process.
On 10 November, 2008, the final multi-lateral agreement was adopted between the National Welfare Fund ‘Samruk-Kazyna’, the AFS, the Ministry of Finance of the Republic of Kazakhstan, and the National Bank of the Republic of Kazakhstan on one side, and the four banks on the other. The state, represented by the AFS and the National Welfare Fund ‘Samruk-Kazyna’ was intended to have tight control over the use of the allocated resources. President Nazarbayev declared that the political party ‘Nut Otan’ would control the “provision of funds to specific contractors”. Kairat Kelimbetov, Chairman of the Board of ‘Samruk-Kazyna’, stressed that the total amount of funding dedicated to BTA Bank would amount to approximately 2.3 billion dollars.
According to opposition media, the decision to grant financial assistance to the four best performing banks in Kazakhstan was a front for taking control of the financial sector.
On 28 January, 2009, ‘Temirbank’, a subsidiary of BTA Bank, was passed into the control of ‘Samruk-Kazyna’. This operation was tantamount to taking control over 51% of the shares of BTA Bank. As a result of reshuffles in the structure of BTA Bank, on 30 January, 2009, the price of ordinary shares of BTA Bank fell by nearly 40%.
On 29 January, 2009, the AFS demanded 100% commission on servicing of foreign loans by BTA Bank. In addition, BTA Bank was given one day to rectify all the irregularities which had been identified as a result of the expert analysis conducted by the AFS.
On 2 February, 2009, at the meeting of the Cabinet of Ministers, it was announced that the government would take control of two Kazakh banks – BTA Bank and Alliance. As a result, the Fund ‘Samruk-Kazyna’ came into possession of 78.14% of the shares of BTA Bank.
The majority share of the state in the bank's capital was motivated by the expert opinion of the AFS, which pointed to insolvency and serious violations of procedures in BTA Bank. The expert opinion, amongst others, drew attention to the ill-practices of granting high risk loans, and reported that the amount of 251.3 billion tenge of equity capital was missing. The fact that the AFS had not issued any serious recommendations to BTA Bank in 2008 in order to rectify the situation of granting high-risk loans, raises doubts over the legitimacy of the expert opinion. Only on 29 January, 2009, did the institution demand that the bank remedy the irregularities within a single day.
Despite the protests of opposition groups in response to AFS's opinion, the Cabinet of Ministers adopted a resolution which dismissed Mukhtar Ablyazov and his first deputy, Zhaksylyk Zharimbetov. Their actions were deemed to be “against the interests of the creditors and owners of the shares, and against the requirements of applicable law”. At the same time, Arman Dunayev, Vice President of ‘Samruk-Kazyna’, was appointed member of the Supervisory Board of BTA Bank. Anvar Saydenov, former President of the National Bank of the Republic of Kazakhstan, was appointed advisor to the President of the Management Board.
The day that the government of Kazakhstan announced that the Samruk-Kazyna fund had taken over 78% of BTA’s shares was called by the opposition “Ablyazov’s black Monday,” and the takeover itself – “financial and political Blitzkreig”.
On 2 February, 2009, in response to the actions of the authorities, Mukhtar Ablyazov made a statement, in which he described the acquisition of BTA Bank as arbitrariness of power, and strongly criticised the government. “The officials are taking away the business, which they did not create”, we read in the statement. Ablyazov also stated that it was highly probable that criminal proceedings would be initiated against him and the members of the management of BTA Bank.
On 4 February, 2009, the Fund ‘Samruk-Kazyna’ transferred 212 billion tenge (about 1.7 billion dollars) to the account of BTA Bank. On that day, in Almaty, the first press conference with the new management of the bank took place, during which the first summaries of the nationalisation were made. It was stated that the deposits were flowing out of the bank, and creditors were submitting requests for early repayment of loans. Within 15 days, BTA Bank lost 700 million dollars. The bank's management stated that these phenomena were temporary and that the bank had sufficient reserves allowing for its stable operation.
The seizing of control of BTA Bank was widely covered by media in Kazakhstan. Pro-government media supported the position of the authorities, claiming that these actions were necessary to ensure the stability of the banking system. These measures were considered to be temporary, and the media refrained from referring to the process of acquisition of BTA Bank as ‘nationalisation’.
According to independent media, the entrance of the state into the capital of BTA Bank was tantamount to its nationalisation with the aim of taking over the bank. The day on which the Cabinet of Ministers announced the acquisition of 78% of the shares of BTA Bank by ‘Samruk-Kazyna’ was referred to as the “Black Monday of Ablyazov” by the opposition media, and the acquisition was labelled the “Financial and Political Blitzkrieg”. According to analysts, the nationalisation of one of the largest Kazakh banks was not a reaction to the global financial crisis, but rather an attempt to make changes in the sphere of influence.
Meanwhile, after the acquisition of control by ‘Samruk-Kazyna’, BTA Bank’s value went into free-fall . On 24 April, 2009, the new management of the bank decided to suspend the repayment of the principal debt (with maturity date of 20 April 2009) due to the obligations of the bank, until such time that the conditions had been agreed upon with the creditors and investors. According to the President of the Management Board of BTA Bank, Anvar Saydenov, the bank was unable to pay off all of the foreign debts, given the fact that the fulfilment of a single demand for repayment of a loan would give all the remaining creditors the right to demand repayment.
The problems of BTA Bank began to widen. On 16-17 May, 2009, the Minister of Finance of Kazakhstan, Bolat Zhamishev, and the President of AFS, Yelena Bakhmutova, attended a meeting of the Governing Board of the European Bank for Reconstruction and Development. During the meeting, the Japanese authorities warned the government of Kazakhstan that if a compromise between BTA Bank and its Japanese creditors could not be reached, the delegations of the largest Japanese companies would be withdrawn from the country.
On 28 May, 2009, at a meeting with journalists, Kayrat Kelimbetov, CEO of the National Welfare Fund ‘Samruk-Kazyna’ stated that BTA Bank had been forced to pay off the debt of 300 million dollars to ‘Morgan Stanley’ bank. Soon after, a few more creditors requested BTA Bank to pay off their debts. In view of the creditors’ demands, the management of BTA Bank decided on restructuring of the debt.
The restructuring of debts required the creditor’s approval. On 23 July, 2009, a meeting with the banks and holders of Eurobonds was held in London. On 3 September, 2009, BTA Bank and the Council of Creditors signed the basic assumptions of principles for restructuring of the financial debt of BTA Bank and its organisational units. On 18 September, 2009, the Memorandum on mutual agreement was signed. The Memorandum set out the options for the restructuring: based on the valuation of BTA, and based on the valuation of the creditors. According to the first option, the amount of the recapitalisation of the bank was 12.5 billion dollars, and, according to the second option – 9.2 billion dollars.
On 23 November, 2009, Тemirbank, a subsidiary of BTA Bank, proceeded with the restructuring of the debts in international and national bonds, as well as some transactions relating to trade financing.
On 7 December, 2009, the Principal Commercial Terms Sheet was signed in London. The Sheet related to the financial restructuring of BTA Bank. The restructuring was aimed at creating an additional regulatory capital of 11.13 billion dollars. This goal was to be achieved by reducing the debt and converting a part of it into share capital. After the restructuring, the National Welfare Fund ‘Samruk-Kazyna’ was supposed to have a majority (85%) of the bank’s shares. After the restructuring, the debt owed by BTA Bank to its creditors was supposed to amount to 4.5 billion dollars, with 797 million dollars subordinated debt.
On 18 December, 2009, the restructuring of BTA Bank was recognised in the UK. On 2 March, 2010, the U.S. Bankruptcy Court also recognised the restructuring process. In this way, the Kazakh side obtained legal protection of the restructuring process, and, as a result, all of the lawsuits connected with the claims against BTA Bank in USA and UK were suspended.
On 31 August, 2010, the Specialised Financial Court of Almaty announced the successful completion of the restructuring process for the amount of 16.65 billion dollars. As part of the process, the bank redeemed the bonds and other obligations, which were earlier released. In return, the creditors were paid the amount of 945 million dollars. The bank also released new debt securities.
As a result of the restructuring process, the size of BTA Bank's financial indebtedness decreased from 16.65 to 4.2 billion dollars, and the maturity date was extended by 20 years. In addition, domestic and foreign creditors became the shareholders of BTA Bank, having a total of 18.5% of its share capital.
Global Rating Group referred to the restructuring of BTA Bank as disappointing, and pointed out that the bank was straining the confidence of its investors. In December, 2010, Standard & Poor's and Fitch raised the ratings of BTA Bank, yet expressing their concerns as to the robustness of its business model.
Government media announced the stabilisation of the situation after the restructuring. Estimated growth rates for the amount of deposits by natural persons were provided. According to the press release of ‘Samruk-Kazyna’, the bank made all of the scheduled payments of interest and foreign debt.
According to opposition media, the restructuring rendered BTA unable to settle its creditors’ claims.
According to opposition media, the restructuring of BTA Bank was equal to its inability to settle with the foreign creditors. The poor financial situation of the bank was a consequence of its nationalisation. The new management of BTA Bank put the creditors in a hopeless situation – they had to accept the restructuring in accordance with the bank's plan or accept the loss of the majority of the capital. The government claimed that the successful completion of negotiations with the foreign creditors allowed for reduction of the total foreign debt by 11 billion dollars. Opposition media stressed that no later than on 7 December, 2009, BTA Bank was required to sign a joint agreement with the creditors. Otherwise, the AFS could revoke the bank's licence or announce the temporary suspension of its activities to the detriment of the creditors, reducing their possibility to recover their funds.
Conditions of the restructuring were quite rigid: of the 11.6 billion dollars of debt recognised by BTA Bank, the creditors received about 5.57 billion dollars (of which 1 billion dollars was paid out in cash, and the remaining amount was paid out in the form of debt securities). The creditors were proposed 15% of shares in the bank and bonds for the return of assets. 85% of shares (136 dollars per share) were received by the Fund ‘Samruk-Kazyna’. In total, only 48% of the debt was paid in one form or another to the creditors.
In fact, the restructuring of BTA meant a refusal to meet its obligations to the shareholders. Some of the creditors did not accept the status quo and continued to defend their interests in order to get their money back from BTA Bank. Roman Solodchenko commented on the situation: “The state did not create other conditions for the debt restructuring. The only alternative was bankruptcy, which would be detrimental to the creditors”.
In early 2011, there were grounds for a second restructuring of BTA Bank. On 22 February, 2011, the bank's shares were included in the list of the Luxembourg Stock Exchange, and valued at 20.50 dollars per share. Only in April the shares depreciated by 36.67%, and 62% by June, based on the valuation of 22 February, 2011.
On 15 May, 2011, BTA Bank published the financial statements for the year 2010, according to which the bank's capital was showing negative after the restructuring (minus 709 million dollars). In October 2011, BTA Bank published the results of the audit conducted for the first half of 2011, which showed that, according to many indicators, the bank's capital was negative – minus 217 billion tenge. In addition, with the drastic decline in the value of the shares of BTA Bank, ‘Fitch Ratings’, ‘Moody's Investors Service’ and ‘Expert RA Kazakhstan’ rating agencies reduced the ranking of BTA Bank.
During January, two of the representatives of the creditors, Maarten Leo Pronk and Christoph Shoefboeck, left the Supervisory Board of BTA Bank. On 7 February, 2012, a new Board of Creditors was created in order to represent the interests of the creditors in the newly planned restructuring of BTA Bank.
On 23 April, 2012, the management of BTA Bank announced the suspension of all payments for bonds, intended for recovery of over 5 million dollars.
On 3 December, 2012, at a general meeting of shareholders, by a majority of votes (99.4%) the new restructuring plan for BTA Bank was approved. The Council of Creditors approved the plan amounting to 1,611 billion tenge (10.9 billion dollars). In this way, during the restructuring process, the financial indebtedness was to be reduced from 11 billion to 3.3 billion dollars, with the maturity date extended from 3 to 12 years. Furthermore, as a result of the second restructuring, the Fund ‘Samruk-Kazyna’ took over 97% of the share capital of the bank.
In December, 2012, investors of BTA Bank: Atlantica Holdings Inc. and Baltica Investment Holding Inc., as well as Alan Kibliski and Jacques Glicksberg as natural persons, sued the National Welfare Fund ‘Samruk-Kazyna’ in the Manhattan Federal Court. In the petition, they accused the defendant of ‘fraud carried out through the development of a system aimed to circumvent the restrictions on the payment of dividends’.
At that time, the ‘Exclusive’ newspaper published an interview with the President of Global Rating, Richard Hainsworth, who stated that BTA Bank needed a strong leader and good managers, who would help the bank recover from the crisis. For the leader, he proposed Ablyazov as a man, who would not “play by the rules of the Kazakh political elite”.