BTA Bank, the largest Kazakh lender to default this year, has asked borrowers to repay billions of dollars ahead of schedule as it struggles to collect on loans made by previous management.
BTA called in more than $4 billion of loans, including the requests for early payment, as of Oct. 1, First Deputy Chief Executive Officer Nikolai Varenko said. The government acquired 75 percent of BTA in February and replaced its top managers as international credit markets dried up and property prices plunged, triggering the country's first recession in a decade.
"We demanded borrowers pay multibillions of loans ahead of schedule," Varenko said in an interview in Almaty, Kazakhstan. "We demand early repayment in cases where the bank management views on-time repayment as problematic."
BTA expects to cancel 1.4 trillion tenge ($9.4 billion) of loans by 2014 as it creates a so-called bad bank to manage risky assets, according to its September business plan. BTA creditors face losses of as much as 82.25 percent under a proposal to restructure at least $10.3 billion of debt.
Kazakh prosecutors issued arrest warrants for former BTA Chairman Mukhtar Ablyazov and former CEO Roman Solodchenko in March on suspicion that they embezzled money and laundered it through loans to fictitious companies. Ablyazov and Solodchenko, who now live outside Kazakhstan, have denied the charges.
BTA faces "active resistance from its former owners, the formal and informal owners of corporate borrowers, the active reselling of assets stripped from BTA, complex loan schemes and corruption," Varenko said.
Solodchenko said BTA is seeking early repayment of loans in an effort to gain control of the borrowers' assets.
"Varenko has been hunting the assets of BTA Bank's customers from the first day he appeared in the bank," Solodchenko said in a telephone interview.
Ablyazov declined to comment and referred Bloomberg News to Solodchenko's answers when contacted through Hudson Sandler, a London-based public relations firm.
Among the suspect deals uncovered by BTA's current management are more than $1.5 billion of loans used to buy the land in the Moscow suburb of Domodedovo on which Ablyazov's OOO Eurasia City planned to build a community for 150,000 people.
"It emerged that the borrowers of this money didn't own the land it was used to acquire," and which was used as collateral for the loans, Varenko said.
Solodchenko said he couldn't comment on the Moscow land deals because he didn't have figures for them.
Varenko also said that a commercial banking unit of BTA's known as UKB 6 made "almost all of its loans," more than $2 billion worth, to acquire non-existent assets.
"Significant extensions were given on many of these loans without clear commercial justification a few days before the change of management," Varenko said. "Given the lack of collateral, we have put aside provisions equal to 100 percent of the value of most of these loans."
Solodchenko said all loans to corporate clients were backed by collateral, and UKB 6 was regularly checked by regulators and auditors.
"I can imagine that some clients stopped trusting the bank after the government took over and they ceased payment of their debts," Solodchenko said. "The new management wants to cover their inability to work with such clients by blaming it on mistakes of the old management."
'Good, Arguable Case'
The High Court in London froze the assets of Solodchenko and Ablyazov in March and extended the order last week after BTA alleged they committed fraud.
Justice Michael Teare ruled on Nov. 12 that the bank had a "good, arguable case" and that there was a "real risk" the defendants might "dissipate their assets." All the defendants deny wrongdoing, and the executives claim the charges are politically motivated, Teare said in his ruling.
Varenko said the case stems from an agreement that Ablyazov and two other former managers signed with an English company to pay shareholders of BTA units in Russia, Belarus and Ukraine not to exercise their rights to buy shares in rights offerings.
While the deal initially allowed BTA to increase its stake in the Russian unit, there was a second share sale a few weeks later and minority investors boosted their stake back to the previous level, Varenko said. There was no need to pay off shareholders in Ukraine because they had no legal right to buy additional shares, and minority investors in Belarus owned just 0.7 percent of the local unit, Varenko said.
"We do not understand what was the commercial reason to pay a significant amount of money for such a deal," he said.
Solodchenko said the second share sale by BTA's Russian unit was necessary because it needed capital for "dynamic growth." BTA wasn't able to participate in the offering without breaking rules that prohibit it from putting more than 10 percent of its capital in a single company, he said.
BTA had an agreement that obliged the Moscow-based unit to sell additional shares to the Kazakh parent, Solodchenko said.
"The agreement was canceled after Kazakhstan raided BTA Bank," he said.
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