Kazakhstan’s 2d Largest Bank Seeks Protection of Its US Assets Through Chapter 15
JSC BTA Bank (BTA), reportedly the second largest bank in Khazakstan, sought protection for its US-based assets through Chapter 15 last Thursday in New York’s Southern District.
The Chapter 15 filing in Manhattan appears to be part of Khazakstan’s own banking bailout for BTA. In papers submitted to Bankruptcy Judge James Peck, BTA Chairman Anvar Saidenov represented, through BTA’s counsel, that between 2004 and 2007 BTA expanded rapidly with significant increases in its total assets and number of branches and cash offices. This expansion was primarily funded through short- and medium-term bank borrowings and the issue of securities in the international capital markets. Khazakstan’s credit-rating downgrade in late 2007 precluded BTA from refinancing its short-term credit lines, which in turn curtailed BTA’s ability to make new loans.
Beyond the Kazakh credit downgrades, BTA allegedly further suffered “significant losses” due to “fraudulent and ulawful transactions entered into by [BTA’s] former management prior to February 2009.”
Before last February, the Republic of Kazakhstan and its Agency for Regulation and Supervision of Financial Markets and Financial Organizations (FMSA) had previously announced a proposal to recapitalize BTA as part of a broader plan to stabilize the country’s financial system. The plan involved JSC National Welfare Fund Samruk-Kazyna (Samruk-Kazyna), Kazakhstan’s sovereign wealth fund, providing financial support to struggling financial institutions. At the same time, Samruk-Kazyna acquired a controlling 75.1 % of BTA’s total share capital. BTA also continued to down-size its operating activities in response to the deteriorating market and BTA’s financial condition.
BTA’s recapitalization triggered “change-of-ownership” clauses and demands for repayment under some of its lines of credit from foreign lenders. These and other, continuing regulatory problems inside Khazakstan ultimately led to a preliminary restructuring plan in mid-2009.
At the end of August 2009, the Kazakh government enacted banking regulatory legislation which put into place, among other things, an insolvency regime to deal with the restructuring of financial institutions. BTA sought protection under this new legislation less than 45 days after its enactment, thereby obtaining a stay of all relevant claims of BTA’s creditors and protection of BTA’s property from execution and attachment until completion of the restructuring.
BTA’s restructuing – presently contemplated within the third quarter of 2010 – presently contemplates that creditors of the Bank, including Samruk-Kazyna and certain related parties (excluding depositors and certain government agencies funding special loan programs) will receive a mixture of cash, senior debt, subordinated debt, other forms of debt, equity and so-called “recovery notes” in consideration for the restructuring of their claims. Payments on the “recovery notes” will be funded by cash recoveries on any provisioned assets, litigation recoveries, and deferred tax recoveries.
Tags: "Agency for Regulation and Supervision of Financial Markets and Financial Organizations", "Anvar Saidenov", "automatic stay", "cash offices", "cash recoveries", "change-of-ownership", "controlling share", "credit-rating downgrade", "deferred tax recoveries", "demands for repayment", "deteriorating financial condition", "deteriorating market", "down-size", "financial stabilization", "financial support", "foreign lenders", "fraudulent and ulawful transactions", "insolvency regime", "international capital markets", "James Peck", "JSC BTA Bank", "JSC National Welfare Fund Samruk-Kazyna", "litigation recoveries", "medium-term bank borrowings", "operating activities", "other debt", "preliminary restructuring", "provisioned assets", "rapid expansion", "recovery notes", "regulatory problems", "Republic of Khazakstan", "restructuring of financial institutions", "senior debt", "short-term bank borrowings", "significant losses", "Southern District of New York", "sovereign wealth fund", "struggling financial institutions", "subordinated debt", "total assets", "US Bankruptcy Court", attachment, branches, cash, Chapter 15, equity, execution, Khazakstan, Manhattan, protection, recapitalization, securities, stay