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Alliance Bank debt restructuring talks break stalemate 15 августа 2014, 15:11

Alliance Bank of Kazakhstan has agreed the basic terms of restructuring of its $1.2 billion debt.
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© Yaroslav Radlovsky © Yaroslav Radlovsky

Alliance Bank of Kazakhstan has finally agreed the basic terms of restructuring of its $1.2 billion debt, Tengrinews reports. All the members of the steering committee of the bank’s creditors have agreed to the bank's new offer, but it is yet to be approved by the voting of the creditors themselves.

The creditor committee includes JP Morgan and funds VR Capital, Lim Advisers and Greylock Capital. Alliance bank's consultants are Lazard Frères and White & Case. The steering committee's consultants are Houlihan Lokey and Dechert.

The restructuring, the bank's second in four years, is called to help the bank restore its capitalisation and make it eligible for merger with two other Kazakhstani banks - Temirbank and ForteBank. The merger will result in creation of a new bank called United Bank, but failure to reach an agreement on restructuring may set back the merger.

Initially, on January 23, the Kazakhstani bank offered a recovery level of 30% on senior debt in the form of new bonds, but the creditors rejected the proposal in April calling it a joke.

In the second attempt in the end of May, the bank offered new terms with a recovery level of above 40%, all in new bonds. The main drawbacks of the two proposals were that Alliance bank offered low recovering and new bonds, whereas the creditors preferred cash. Back in May one of the creditors anonymously told Reuters that "creditors will be looking for 50-60 percent", which is way above the proposed 40%.

On August 1 Alliance bank offered a new deal to the steering committee and the latter agreed. The recovery level of the offer is better than that of the previous ones, but new bonds still constitute a majority of the compensation packages. According to the estimates of Halyk Finance, the recovery level on the new deal is a little bellow 50%. 

The new bonds in question are 10-year notes with a $236.6-million total principle that will be repaid in 16 equal semi-annual installments starting after a 30-month grace period, with the semi-annual coupon interest rate of 11.75 percent per annum.

In the new restructuring offer, senior bonds will be exchanged for packages of the new bonds, cash and equity in United Bank that will emerge as a result of the merger of the three Kazakh banks. Recovery notes will be exchanged for equity only and subordinated notes for cash only. All in all the haircut will exceed 50%.

The creditors holding the bank's senior bonds maturing in 2017 are offered $175.6 million in news bonds, $50 million in cash and an equity in United Bank worth around $61.4 million.

Holders of the senior notes maturing in 2020 will receive $61 million in new bonds,  $8.1 million in cash, and an equity in the new United Bank worth around $21.4 million.

Holders of recovery notes due in 2020 will receive only cash: $41.8 million.

Holders of subordinated bonds maturing in 2030 will get only equity in the new bank worth $6.7 million.

Alliance Bank is 51 percent owned by Kazakhstan Sovereign Wealth Fund Samruk-Kazyna and 16 percent owned by Kazakh multi-billionaire Utemuratov. He purchased the share from Samruk-Kazyna earlier this year. He is also the controlling shareholder of Temirbank and ForteBank - the two Kazakh banks that Alliance Bank will be merging with. The state-own Fund acquired the 67% share in the bank when bailing it out during the crisis, but is now pursuing a strategy of withdrawing from the banking sector of Kazakhstan.

The controlling shareholder Fund Samruk-Kazyna will contribute to the restructuring by prolonging its deposits in the bank and lowering their interest rate. It will convert its existing deposits in the amount of $364.25 million and new deposits in the amount of at least $65.38 million into 10-year deposits with an interest rate of 4 percent per annum.

“We are pleased with the outcome of negotiations with the steering committee. We believe that the restructuring will allow the bank to restore its capitalisation and liquidity necessary for Temіrbank and ForteBank to merge with Alliance Bank to produce one of the leaders of the Kazakh banking market. We hope to complete the restructuring and legal consolidation of the companies by the end of 2014," the bank's chairman Timur Issatayev said. The merger is expected to produce a bank with Tier I capital adequacy ratio exceeding 12 per cent that will be able to maintain the ratio at this level over the mid-term period.

Deputy chairman of Samruk-Kazyna Elena Bakhmutova confirmed that the Fund was satisfied with the results of negotiations between the Alliance Bank board and the steering committee. "Completion of the restructuring and consolidation of Temirbank and ForteBank with Alliance Bank will lead to successful implementation of Samruk Kazyna strategy to exit the banking sector of Kazakhstan," Bakhmutova said. 

The restructuring process is due to be completed on October 25, 2014. 

By Dinara Urazova and Tatyana Kuzmina


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