09ASTANA662, KAZAKHSTAN: FUTURE OF LARGEST BANKS REMAINS UNCLEAR

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Reference ID Created Released Classification Origin
09ASTANA662 2009-04-17 11:40 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO2543
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #0662/01 1071140
ZNR UUUUU ZZH
O 171140Z APR 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5193
INFO RUCNCIS/CIS COLLECTIVE 1500
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0878
RUEHKO/AMEMBASSY TOKYO 1581
RUEHUL/AMEMBASSY SEOUL 0565
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1063
RUEKJCS/SECDEF WASHDC 0977
RUEKJCS/JOINT STAFF WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 02 ASTANA 000662 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
STATE PLEASE PASS TO OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV EFIN KZ
SUBJECT:  KAZAKHSTAN:  FUTURE OF LARGEST BANKS REMAINS UNCLEAR 
 
REF:  ASTANA 0386 
 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (SBU) SUMMARY:  Recent developments within the Kazakhstani 
banking sector -- specifically pertaining to BTA and Alliance banks 
-- indicate continued instability and increased risk of default on 
the repayment of foreign obligations.  In an April 13 press release, 
Alliance Bank announced approximately $1.1 billion in newly 
discovered obligations.  BTA Chairman Arman Dunayev restated the 
Government of Kazakhstan's commitment to support BTA, but warned 
that any request for accelerated repayment of debt could force the 
government to abandon this cause, leaving creditors in the lurch. 
The government's Samruk-Kazyna National Welfare Funds bought a 22 
percent in Halyk Bank on April 2.  END SUMMARY. 
 
ALLIANCE BANK ON THE BRINK 
 
3. (SBU) The future of Alliance Bank, Kazakhstan's fourth largest 
private financial institution, remains uncertain.  Alliance has yet 
to receive the capital injection pledged by the government's 
Samruk-Kazyna National Welfare Fund when it took over a 76 percent 
ownership stake in the bank in February for the symbolic sum or 100 
tenge (less than $1).  On April 1, the United Kingdom's Financial 
Services Authority announced a temporary suspension of trading in 
Alliance Bank securities listed on the London Stock Exchange 
"pending clarification of the company's financial position."  This 
announcement was made following a press release from Alliance Bank 
the same day describing a "discovery by Alliance Bank's new 
management team" that the Alliance's securities portfolio "may be 
seriously impaired." 
 
IT GETS WORSE 
 
4.  (SBU) More recently, on April 13, Alliance Bank announced that 
it is seeking a three-month standstill agreement from its creditors 
because of a previous overstatement of assets.  According to this 
statement, "the bank wishes to advise that the overstatement relates 
to transactions entered into by the Bank between 2005 and 2008 that 
were not properly recorded on the Bank's balance sheet.  The 
transactions included guarantees that were issued by the bank that 
were secured by a pledge of U.S. Treasury securities in the amount 
of approximately $1.1 billion."  As a result, Alliance said it was 
"not in a position to repay the outstanding balance due under a 
facility agreement which matured on March 19."  The request for stay 
of payment by Alliance Bank was confirmed by representatives of 
Wachovia Bank in a meeting with the Ambassador in Astana on April 
15.  This announcement led Fitch Ratings to downgrade Alliance's 
Long-Term Issuer Default Rating (IDR) to RD (Restricted Default). 
(COMMENT:  OPIC informed Embassy that the standstill request might 
directly impact its $27 million exposure to Alliance.  END COMMENT.) 
 
 
BTA STILL TOP PRIORITY 
 
5.  (SBU) The fate of BTA bank also remains uncertain.  However, 
despite sharply divided opinions regarding whether the government, 
through Samruk-Kazyna, should have taken over BTA in the first 
place, the consensus remains that the government will not let it 
fail.  Commitments to the survival of BTA come amidst a growing 
tally of criminal allegations against its former top executives, 
Muktar Ablyazov and Roman Solodchenko, both of whom fled Kazakhstan 
and are believed to be in the United Kingdom.  In a rather sharply 
worded official press release from BTA on March 17, a clear message 
was sent to creditors not to force accelerated debt repayment, 
because they would risk losing their entire investments.  The BTA 
press release states "Samruk-Kazyna intends to ensure that the 
members of the BTA Group continue to pay their financial 
indebtedness at maturity and interest payments as and when they fall 
due whilst BTA Bank and its advisers consider any potential 
modifications to the BTA Group's debt structure to ensure the long 
term stability of the BTA Group, although in the event any financial 
 
ASTANA 00000662  002 OF 002 
 
 
indebtedness of the BTA Group is accelerated prior to its stated 
maturity, Samruk-Kazyna may no longer be prepared to provide such 
support."  Meruert Makhmutova, Director of Public Policy Research 
Center in Almaty, told EconOff on April 6 that the government will 
maintain the bank until the very last moment regardless of how much 
it costs, and the price will be high for doing this.  Yerlan

Sagadiyev, a respected embassy contact and entrepreneur, told the 
DCM "it will be a nightmare for everyone in government if BTA fails. 
 However, he added "it was stupid for the government to go into the 
private sector."  Sagadiyev claimed that the number of bad loans 
increased 46 percent in February and alleged that the new management 
of BTA had lost control of their credit portfolio. 
 
FOREIGN DEBT RESTRUCTURING KEY TO SURVIVABILITY 
 
6.  (SBU) According to the press, during a April 13 meeting with 
President Nazarbayev, the Financial Supervision Agency head Yelena 
Bakhmutova said that the situation in the banking sector remains 
problematic.  Nazarbayev assigned both Bakhmutova and National Bank 
Chairman Grigoriy Marchenko the task of reviewing the possibility of 
debt restructuring in order to lighten pressure on the banking 
system.  On April 15, Marchenko announced that both Alliance and BTA 
had until the end of April to prepare their programs for 
restructuring external debts.  "After that, it will be clear which 
portion of the banks' obligations will be bought at a discount, and 
which portion will be restructured.  Then the numbers for external 
debts of these banks will be understood, and then we can move 
forward also with our strategic investors, which we have for both 
banks."  Marchenko concluded saying that "if this is done correctly, 
and all foreign creditors agree to it, it will be beneficial for 
these two banks we are discussing, for the banking system as a 
whole, and also for the country." 
 
SBERBANK INTERESTED IN BTA 
 
7. (SBU) Marchenko claimed that the possible strategic investor for 
BTA remains Russia's Sberbank, and for Alliance Bank is an unnamed 
local investor.  However, Makhmutova maintained to Econoff that it 
is likely that Sberbank will be even less enthusiastic about the 
possible purchase once it learns the results of BTA's audit at the 
end of April. 
 
GOVERNMENT MOVES AHEAD WITH PURCHASE INTO HALYK BANK 
 
8.  (SBU) On April 2, Samruk-Kazyna officially announced the 
purchase of 21 per cent of the common shares in Kazakhstan's third 
largest private financial institution, Halyk Bank, for 27 billion 
tenge (about $179 million).  The news came with an announcement from 
Halyk Bank that it expected the government to inject an additional 
$219 million into the bank through the purchase of preferred shares 
over the following two months.   The majority owner of Halyk remains 
the Almex holding company, which holds approximately 54 percent of 
its common shares.  (NOTE: Almex is owned by Timur Kulibayev and his 
wife Dinara, President Nazarbayev's second eldest daughter. 
Kulibayev is currently the deputy head of Samruk-Kazyna.  END NOTE.) 
 
 
9.  (SBU) COMMENT:  The government remains publicly committed to 
rescuing Kazakhstan's largest banks.  However, its failure thus far 
to inject the promised funds into Alliance may be an indication it 
is reconsidering saving that institution because of the high cost of 
doing so, or it may be waiting to first reach agreement with a 
private investor to share these costs.  END COMMENT. 
 
HOAGLAND

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