Kazakhstan's Alliance Bank enters restructuring deal with creditors

By Caroline Salls

Pittsburgh, July 8 - JSC Alliance Bank has entered into a non-binding memorandum of understanding with a creditors' steering committee regarding the restructuring of Alliance Bank's debt, according to a company news release.

The steering committee is comprised of Asian Development Bank, Calyon, Commerzbank AG, DEG Deutsche Investitions- und Entwicklungsgesellschaft mbH, ING Asia Private Bank Ltd., HSBC Bank plc, JPMorgan Chase Bank, NA, Sumitomo Mitsui Banking Corp. Europe Ltd. and Wachovia Bank NA.

Under the terms of the memorandum of understanding, the bank's financial creditors are expected to be offered five options with equivalent interest rates for other eligible currencies.

Restructuring options

The options include:

• A fixed offer cash buyback at a 77.5% haircut. This option will be capped to limit the cash allocation to a maximum of $500 million. The bank expects to retire a minimum of $1.85 billion of its debt under this option;

• An option with a 50% haircut, a seven-year maturity, an interest rate of 5.8% and principal amortization following a grace period of four years.

This option will also provide for recovery notes to participate in recoveries from written down amounts, litigation and tax assets in a total amount equal to the debt forgiveness. The recovery notes will be capped at the initial amount of the forgiven debt and entitled to 50% of any cashflows, and will carry a capitalization rate of 4.2%;

• A no haircut option with a 10-year maturity and principal amortization following a grace period of seven years. There will be an interest rate of 4.7% for the first seven years, including 2.0% paid in cash and 2.7% capitalized at the end of year seven. Principal and capitalized amounts will be amortized over three years at an interest rate of Libor plus 850 basis points, which may be reduced to Libor plus 650 bps when the bank reaches and maintains investment-grade status;

• Subordinated debt will be automatically allocated to this option. This subordinated option will be classified as tier 2 capital and involve no haircut, a 13-year maturity and principal amortization following a grace period of 10 years. There will be an interest rate of 5% for the first 10 years, comprised of 2% paid in cash and 3% capitalized at the end of year 10. The principal and capitalized amounts will be amortized over three years with a fixed interest rate of 10%; and

• An option that contemplates the allocation of 33% preferential shares and common shares issued under the restructuring to participating creditors under options two to five.

In connection with the conversion into preferential shares, this option calls for conversion of senior debt at a 75% haircut and conversion of perpetual eurobonds at an 80% haircut. Preferential shares will carry a 4% interest rate.

Participating creditors under options two to five may also receive an equity component in the form of ordinary shares in Alliance Bank representing 33% of common shares.

Conditions

Alliance said it will present the memorandum of understanding for approval by the FMSA on July 15, subject to the fulfillment of several requirements, including delivery of a memorandum of understanding executed by Samruk-Kazyna National Welfare Fund JSC and Alliance Bank under which Samruk-Kazyna will acquire a majority stake in the bank and recapitalize it in an amount sufficient to meet regulatory requirements..

Alliance Bank is focused on small and medium enterprises and the retail segment. It is based in Almaty, Kazakhstan.

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