Kazakhstan needs IMF to avert Emerging-Market Crisis, ING says

    Kazakhstan, whose companies hold more debt than any former Soviet nation after Russia, may need International Monetary Fund financing to avert a “bond crisis” following defaults by three lenders, according to ING Groep NV.
    Astana Finance, part-owned by the government, said yesterday it stopped paying interest and principal on $175 million of bonds. Alliance Bank, the nation’s fourth-biggest by assets, and state-controlled BTA Bank defaulted in April.
    The former Soviet Union accounts for about half of all distressed debt in emerging markets, with Kazakhstan the second- largest corporate borrower, said David Spegel, head of emerging- market strategy at ING Financial Bank NV in New York.
    Companies are struggling after gross domestic product in Kazakhstan, holder of 3.2 percent of the world’s oil reserves, shrank 2.2 percent in the first quarter on weakening demand for commodities after growth of more than 10 percent from 2000 through 2006,
    “Foreign investors have a big interest in Kazakhstan,” Spegel said in an interview. “So there is a possibility that the IMF in an effort to prevent, to stem a crisis in the emerging market bond market, might try to step in.”
    Kazakhstan central bank Governor Grigori Marchenko said May 16 in London that the country won’t turn to the Washington-based IMF, which has mounted rescues from Pakistan to Iceland in the past six months.
    IMF Assessment
    When asked if the IMF is considering a financial-rescue package Simonetta Nardin, a spokeswoman, referred to a report issued by the fund last week that calls for “a full diagnostic assessment” of Kazakhstan’s large banks.
    The May 15 report, an annual review of Kazakhstan’s economy and financial system, also called for “a prompt resolution” to negotiations between creditors and domestic banks “because the underlying businesses of these banks will deteriorate rapidly if uncertainties about their future linger.”
    Astana Finance, located in Astana, cited a “deterioration” of its finances yesterday in its decision to halt payments on the five-year, 9 percent bonds maturing in 2011. Astana Finance will seek to restructure its domestic and international debts within 12 weeks, the lender said in a regulatory filing.
    The bank has $2.2 billion of dollar, euro, yen and tenge debt outstanding, including $103 million due this year, Bloomberg data show. The 9 percent dollar bonds were yielding 102 percent on May 1, the last day they traded, according to prices on Bloomberg.
    Alliance Bank
    Alliance Bank, based in Almaty, said last month it stopped paying creditors after discovering $1.1 billion of liabilities that weren’t reflected on its balance sheet. It didn’t make a principal payment of more than $10 million on “a certain senior non-Kazakhstani law governed” loan placed with foreign lenders due May 11, the bank said last week.
    Almaty-based BTA, the nation’s largest bank, was taken over by the state’s sovereign wealth fund in February and halted principal payments on its debt last month as creditors demanded immediate repayment.
    “When the crisis originally began, Kazakhstan was the first hit,” ING’s Spegel said. “And everything that is happening now has been building up for a while.”
    President Nursultan Nazarbayev’s government has spent more than 734 billion tenge ($4.9 billion) to support banks and businesses since the economic downturn began in 2007, including the February takeover of BTA.
    Defaults by the three lenders “are going to spill over into the economy,” said Jack Deino, who oversees $450 million of emerging-market debt at Invesco Inc. in New York. Financing from the IMF “is a possibility,” he said, according to Bloomberg.com