Kazakh BTA bank bonds in sharp selloff

LONDON Mon May 16, 2011 5:45pm IST

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LONDON May 16 (Reuters) - Bonds in Kazakhstan's BTA bank extended recent sharp losses on Monday, with the 2025 issue trading at a record low 56 cents on the dollar, following recent results which some said had disappointed investors.

BTA BTAS.KZ, the biggest of the four Kazakh banks to default in 2009, underwent a high-profile debt restructuring last year and is now 81 percent owned by sovereign wealth fund Samruk-Kazyna.

It said on May 12 it had returned to profit in 2010, though analysts and investors said this was mostly fuelled by gains following the restructuring and showed a slower-than-expected pace of recovery for BTA's banking operations.

The sell-off, which started some weeks ago in the run-up to the results, has hit bonds across the BTA curve, forcing yields on the $500 million 2025 bond to almost 15 percent. That is a rise of over 250 basis points since early May KZ053299067=.

The bond was down by almost 7 points in price on Monday while the 2018 issue was down to 97.5 cents from 105 at the start of the month KZ053298877=.

Alain Defise, who runs a corporate debt portfolio at JP Morgan Asset Management, said the consensus had turned firmly against BTA following the results announcement.

"Investors are disappointed and now believe everything that management and Samruk-Kazyna communicated before was too optimistic. The key question is to what extent Samruk-Kazyna will support the company," Defise said.

Bond traders in London reported that several funds had offloaded BTA debt late last week, sucking in more sellers.

The rout is also showing signs of spilling into other Kazakh banking names, with credit default swaps in Kazkommertsbank KKGB.KZ, the country's No.1 private bank, rocketing to 675 basis points in the past week from 550 bps, data from Markit shows.

Kazkommertsbank's recent 2018 dollar bond has fallen to 95 cents on the dollar from 99.5, as investors used the bank as a proxy for Kazakh risk.

BTA securities have been weakening in recent weeks on speculation the results may be worse than expected but the sell-off escalated last week.

The bank confirmed on May 12 that it had an equity deficit of 104.5 billion tenge ($717 million) at the end of 2010, albeit reduced from 1.69 trillion at the end of 2009.

"The net interest margin is probably negative on a cash basis. This means it's burning the cash injected by the state in its capital," said Mikhail Nikitin, analyst at Russian investment bank Renaissance Capital.

"In its current situation, the bank is fully on life support from the Kazakh authorities. It may continue in this state for another year, or maybe even longer," Nikitin said, adding investors wanted more clarity on underlying asset quality and Samruk-Kazyna's willingness to provide further support.

BTA declined immediate comment. (Reporting by Sujata Rao and Carolyn Cohn in London and Robin Paxton in Almaty)

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