The New Perils of BTA Bank

The famous international rating agency S& P Global Ratings has assigned ‘B/B’ long- and short-term foreign and local currency issuer credit ratings and ‘kzBB’ national scale rating to BTA Bank JSC, the outlook «Stable».

Here is BTA Bank’s English translation of its press-release (text in bold by

«According to analysts of the rating agency, BTA is characterized as a company with a significantly lower debt burden than most comparable organizations. At present, the Group has no debt at the level of the head organization and the cash flow will be sufficient to meet liquidity needs. Moreover, the rating agency notes the high qualification level of the BTA management team.

The assigned S& P rating level is the result of significant efforts and actions taken by the company in previous years to improve the quality of assets and ensure its financial stability.

«We regard the assignment of a positive credit rating as one of the important steps on the way to creating a successful and profitable company. This rating is an additional confirmation of a stable position in the market, the effectiveness of the management structure and the development strategy. We believe that this event will be positively perceived by the investment community which will make it possible in the future to take the position of one of the leading business groups in the region«, — Assel Orumbayeva, Chairman of the Management Board of JSC BTA Bank».

The website of the S& P Moscow Office says that the BTA Bank rating has the «New» status which means that the bank’s owner Kenes Rakishev wanted to obtain a rating from one of the best-known and most respectable international rating agencies. The question is why. We believe he did it to change the image of his internationally notorious company still called a «bank» but not operating as one.

Since S& P’s services are not cheap, it is clear that Kenes Ralishev has had serious reasons to spend the money. To understand them, we will analyze the text of S& P’s press-release taken from the S& P Moscow Office’s website.

Here are some key passages from the document (text in bold by

«Global Ratings had assigned its 'B/B' long- and short-term foreign and local currency issuer credit ratings to BTA Bank J.S.C. (BTA). The outlook is stable.  At the same time, we assigned our 'kzBB' Kazakhstan national scale rating to BTA.  BTA is an investment vehicle that focuses on recovery of the assets of the failed BTA Bank and its former owners. BTA is majority owned by Mr. Kenges Rakishev, a Kazakh businessman with various investments in retail, gold mining, and media. While we think that BTA’s management team is relatively strong, combining necessary legal expertise and historical knowledge of BTA’s affairs, we think that key man risk is pronounced in the case of BTA.

In 2017, BTA sold a portion of its assets to state-owned Problem Loans Fund and used the proceeds to repay the debt at the level of BTA, resulting in zero leverage at the level of the top company. The assets on its balance sheet and in the process of repossession include a variety of business and property objects, most notably:

  • Logistic parks (warehouses) in Russia (three objects near large cities with populations of over 1 million people).
  • Real estate development projects in Moscow, Russia.
  • Banking subsidiaries in Kyrgyzstan, Belarus, and Ukraine, with combined total equity of around US70 $ million.
  • A port in Northern Russia.
  • A gold mining project in Romania.
  • An oil and gas facility in China.

We understand that the estimated value of these projects is around US700 $ million, which indicates some upside against the current book value of less than US500 $ million. The group has yet to demonstrate its ability to develop and sell businesses at a correctly estimated value, however, as previous sales took place soon after their repossession.BTA also plans to invest in new Kazakhstan-based projects via its subsidiary Zhetysu Capital and owns a number of lesser real estate objects and land plots in Russia and Kazakhstan.

We understand that BTA aims to sell some of these businesses and develop others, predominantly entering into partnerships or joint ventures with other investors, whereby BTA will provide an asset and the partner will provide the required funding and expertise.

We understand that currently the projects where additional funding will be organized and potentially guaranteed by BTA are few and limited to logistic parks and the port in Russia.We expect BTA’s cash flow structure in 2019-2020 to be fairly concentrated, coming predominantly from a few assets, namely from the sale of subsidiaries, several real estate assets in Kazakhstan and Russia, and development of warehouses in Russia.

After litigation during 2009-2013, the U.K. High Court found Mr. Mukhtar Ablyazov, the former owner of BTA before its nationalization in 2009, and his associates, liable to pay BTA around US5 $ billion, of which around US1 $ billion has been recovered to date. BTA continues recovering assets (e.g., in February 2018 it received around US38.5 $ million worth of real estate and funds as part of an out-of-court settlement). However, we understand it aims to dramatically reduce expenses on these operations via partnership with litigation funds that will bear the costs in exchange for a share of recovered assets. We do not include potential proceeds from these recoveries in our projections, given their unpredictable nature.

BTA is considerably less leveraged than most its peers, currently having no debt at the top level of the group and with only a moderate appetite to raise it. Our base-case scenario includes the group raising around US200 $ million of debt denominated in Russian rubles to fund its activities in Russia at the level of local operating companies and guaranteed by the top-level entity. We assume that leverage is unlikely to exceed 30% of the group’s adjusted common equity.

While we understand that the group aims to service the debt at the operational level, we nevertheless believe that, if needed, BTA has sufficient cash flows arising from sale of subsidiaries to service the debt with available cash and revenues typically covering cash needs by around 1,5x-2.0x. That said, we believe that the group is inherently dependent on successful sale of properties and businesses to provide for its operational expenses and litigation costs»

The cited paragraphs allow us to conclude the following:

  • first, in total, BTA Bank has recovered 1 $ bln worth of assets, but, currently, only has the assets in the amount of 0.5 $ bln (real value) or of 0.7 $ bln (estimated value);
  • second, to complete the projects worthy of 200 $ mln, BTA’s subsidiaries have already obtained ruble loans in Russia guaranteed by the head company;
  • third, Kenes Rakushev must either sell certain assets to complete the big investment projects in Moscow and the Moscow region or attract the solvent partners. Or else — find additional financing;
  • fourth, BTA Bank is experiencing the problems with covering the Ablyazov trial expenditures outside of Kazakhstan and is trying to solve them via attracting the monetary funds to pay for the services of the foreign legal firms in exchange for a share of the recovered assets (litigation funds).

So, it looks like Kenes Rakishev’s abilities to obtain new loans in the Russian banks are limited and not only because Russia’s investment climate has significantly worsened for the past four years, but due to the relatively high costs of ruble loans and the (according to our estimates) the exhausted collateral base. Therefore, he has probably decided to obtain investment ratings from the big international rating agencies and try to find the necessary funds abroad.

It is hard to say how good Rakishev’s chances are to succeed in this venture. Back in the day, he used to have good connections in the US thanks to his generous sponsoring of Hilary Clinton. However, a lot has changed since the last US Presidential elections including the Western invertors’ treatment of the developing states that are Russia’s neighbors and allies.

The domestic political situation in Kazakhstan also does not work to Kenes Rakishev’s advantage. His participation in Akorda’s Halyk Bank rescue operation via placing 2.6 trillion tenge on BTA balance and then transferring 2.4 trillion of this sum through Kazkommertsbank to the end receiver is extremely dangerous from the political standpoint since, if certain changes are to take place in Akorda, he will be hold responsible for that.

By the way, despite S& P’s rather high rating, there is an abundance of such risks for BTA including the reversal (albeit theoretical) of the UK Court decision to collect 5 $ bln from Mukhtar Ablyazov or the declaration of personal bankruptcy by the latter.


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