Kazakhstan’s Kazkommertsbank is the next domino to fall
ALMATY: Shockwaves from a default by the biggest bank in Azerbaijan are spreading to its neighbour on the opposite shore of the Caspian Sea.
Already burned by the International Bank of Azerbaijan’s (IBA) missed payment and its effort to wrest a 20% principal writedown in a proposed debt restructuring, investors are starting to wonder if Kazakhstan’s Kazkommertsbank is the next domino to fall. Its US$250mil of subordinated bonds are trading below par only two weeks before maturity, a sign the bank’s ability to come through is in doubt.
“Certainly some bondholders fear” that the Kazakh bank would follow in the footsteps of the Azeri lender, said Lutz Roehmeyer, who manages about US$2.2bil including IBA and Kazkommertsbank bonds at Landesbank Berlin Investment. “The ranking of the bonds is similar. I think the fear here is simply non-payment.”
Kazkommertsbank lost its footing after absorbing twice-defaulted BTA Bank in 2014, with its finances further upended by a crash in oil prices. Until recently the top asset holder among Kazakh lenders, it’s already required a 2.4 trillion-tenge (US$7.7bil) state bailout via a purchase of bad assets to pave the way for its acquisition by Halyk Bank.
“Kazakhs will watch the Azeri story and keep paying for now,” Alexey Tretyakov, money manager at Aricapital Asset Management in Moscow, said by e-mail. “If the haircut is forced through, then they may well repeat it.”
Since November, Kazkommertsbank has had to endure an exodus of depositors that reduced holdings on corporate accounts by about a third. It retains access to a special loan of 200 billion tenge from the central bank, which it rolled over in March, on top of another 200 billion tenge borrowed from it in February.
Speaking in an interview last November, President Nursultan Nazarbayev said Kazakhstan wouldn’t let the bank collapse.
The market, however, isn’t yet convinced the worst is behind it. Even after the bank said last Friday that it planned to repay the subordinated bonds in full using its own money, the securities continue to trade below 100 cents on the dollar. Even so, they rose for a third day on Monday, adding almost 1 cent to 96.67.
Kazkommertsbank’s “statements are aimed at showing that it has sufficient liquidity for at least redeeming its short-term liabilities,” Alexey Bulgakov, a fixed-income analyst at Sberbank CIB in Moscow, said by phone. Still, the situations are different in that Kazakhstan is witnessing a “consolidation of the biggest banking institutions in a single pair of hands. In Azerbaijan, the sovereign thought it can save at creditors’ expense, since it’s completely taking over a bad bank.” — Bloomberg