June 20, 2011 / 2:55 PM / 7 years ago

Kazakh wealth fund's BTA bond plunges on coupon worry

LONDON, June 20 (Reuters) - Kazakh sovereign wealth fund-owned bank BTA’s BTAS.KZ debt fell sharply on Tuesday as investors fretted over the bank’s financial strength ahead of upcoming coupon payments.

BTA underwent a debt restructuring last year after a 2009 default and its $2 billion bond due 2018 KZ053298877= fell more than 4 points on Tuesday to 73.4, according to Thomson Reuters data, giving a record high yield close to 20 percent.

The bond traded at a yield of under 10 percent in mid-April but has come under severe pressure since then.

BTA released results on May 12 which disappointed investors as they indicated that BTA would need to stay on life support from sovereign fund Samruk-Kazyna for much longer than expected. [ID:nLDE74F0OP].

The bank is due to make coupon payments totalling more than $100 million on July 1. Athough investors say BTA has the ability to pay the coupons, they are worried about a lack of communication from the bank and from sovereign wealth fund Samruk-Kazyna, which owns 81.5 percent of BTA.

“If they don’t pay, it will be a political decision to restructure the bank, the government making the decision to let the bank fail again,” said Okan Akin, emerging corporate debt strategist at RBS. “That would be very unfortunate.”

Executives at BTA were not immediately available for comment.

The bank is suffering because its income is below the interest it is paying on loans, investors said.

“Their funding costs are quite high, they have a huge amount of loans they are trying to restructure,” said one fund manager.

Investors are also keen to offload long debt positions in BTA taken on after the restructuring, which was deemed a success at the time.

“Some of the investment banks are full of BTA, they were quite bullish going into the sell-off. The hedge funds are also quite full and have been burnt,” said Andrei Andrijanovs, credit strategist at frontier markets brokerage Exotix.

“Real funds are looking for some kind of indication that the government will be there to support the bank.” (Reporting by Carolyn Cohn; editing by Stephen Nisbet)

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