BTA Bank stops repaying Foreign Debt
The largest bank in the Central Asian nation of Kazakhstan, whose economy soared when oil prices were high, announced on Friday that it could no longer repay $11 billion in foreign debt.
BTA, said it would pay only interest to foreign creditors, who lavished the country with loans during the commodity boom.
The move underscored the growing financial instability in countries all across the former Soviet Union.
The financial industry in Kazakhstan grew explosively until credit markets seized up two years ago. Rather than raise money through deposits, banks borrowed excessively from international lenders. Those lines of credit dried up in Kazakhstan quicker than elsewhere, given the risky nature of doing business in the country.
The government has responded with efforts to shore up its finances with new oil deals.
This week, Kazakhstan’s national oil company agreed to form a joint venture with a subsidiary of the China National Petroleum Corporation to develop petroleum licenses in Kazakhstan.
The country holds about 3 percent of the world’s oil reserves. In the deal, China agreed to provide Kazakhstan with $10 billion in loans.
In a statement about the default, BTA said its freeze on the repayment of principal became necessary when some creditors demanded accelerated, or early, repayments. If the bank had met their requests, the statement said, it would have run counter to a stated intention of treating all creditors equally.
The rating agency Fitch immediately downgraded BTA bonds to “restricted default.” BTA bonds traded Friday at 21 cents on the dollar after the announcement, Bloomberg News reported.
The decision is likely to ripple throughout the region. Banks in Kazakhstan and Ukraine are seen as especially vulnerable.
BTA had been wobbly for some time. The Kazakh government partly nationalized the bank in February. That was taken as a sign that the bank’s debt might be covered by a sovereign guarantee, though even at the time government-appointed executives said they were studying ways to restructure foreign debt.
“This was expected in the sense the bonds had already been trading in a deeply distressed fashion,” Adel Kambar, the chief executive of the Kazakh office of Renaissance Capital, said in a telephone interview.
BTA also tried to rescue itself with a sale to Russia’s state-owned retail bank, Sberbank. Those talks were inconclusive. On Friday, Russia’s government news agency RIA Novosti said Sberbank was still interested in buying a large share, but that a purchase would depend on the outcome of debt restructuring talks with Western creditor, according to Reuters.