We would like to present the research on Tsesnabank we have promised to our reader. The story of its fall is particularly instructive due to the Asset Quality Review they have started to conduct in the country. As we predict, its results may take the form of a rather heavy bludgeon even for Nursultan Nazarbayev’s close relatives.
We have already touched upon the Asset Quality Review (AQR) subject launched on August 1, 2019, in Kazakhstan by the decision of the Central Bank (see A Crack-Down on Kazakh Banks).
Here are some paragraphs from this publication.
«In our opinion, the decision to conduct the AQR has to do with the critical state of affairs in the Kazakh banking system that looks much better on paper than it does in reality.
Akorda has long been trying to resolve the issue, however, the authorities were postponing the decision since acknowledging the depth and the scale of the problem would:
- first, be dangerous since it would provoke the citizens «hasty retreat» to foreign currency and cause panic among the savers,
- second, inflict a serious blow to the state’s image,
- third, call in question the quality and efficiency of the First President Nursultan Nazarbayev’s economic policy.
As a result, Kasym-Zhmart Tokayev who has inherited not only the chair and the powers of the head of the state but the numerous economic, social and domestic policy problems from the Leader of the Nation was forced to give the AQR a green light which had been insisted on by the professionals including those from the National Bank for a long time».
Upon the completion of the analysis, we have arrived at the following conclusions:
«The thing is that 90% if not everything that is happening in the banking sector today depends on the National Bank of Kazakhstan. And it is enough for it to refuse to give support to a bank or to reveal the real scale of the problems in one bank or another, and the latter cannot but «drown». Interestingly, judging by the information provided by our sources, it concerns all Kazakhstan’s financial institutions including the Halyk Bank of Kazakhstan.
As a result, the regulator and its top-management are kept under constant pressure. In the meantime, the AQR will allow the National Bank and Erbolat Dosayev personally to secure a footing in the dialogue (battle) with the representatives of the Kazakh elite controlling the banks.
In other words, the results of the independent review of the assets will invariably turn into a bludgeon in the regulator’s hands. But whether or not it will be used to make the financial institutes increase loan-provision to the real economy, reveal the problems and stimulate the owners to increase the banks’ capitalization would mostly depend on further developments not so much in the banking sector and the economy as in the domestic policy and the inter-elite relationships».
In our opinion, the «bludgeon» in the form of the AQR results on which the National Bank of Kazakhstan (or, more precisely, its Chairman Erbolat Dosayev) will lay their hands in about 5-6 months will turn out to be much «heavier» and more «persuasive» than the second-tier banks’ owners and top-managers want to believe, especially in the case if the mentioned banks are controlled by the relatives and allies of Kazakhstan’s First President Nursultan Nazarbayev.
And not only because, with the Leader of the Nation’s passing, they will automatically lose a part of their political influence in Akorda. The National Bank has already learned how to solve the problem of the sinking financial institutes quickly and effectively.
To confirm this, let us recall the story of Tsesnabank JSC. Contrary to BTA Bank JSC and Kakommertsbank JSC whose unfortunate stories had been dragging on for years (in the first instance, for the whole eight and a half years from February 2, 2009 till July 1, 2017), the bank «drowned», was «saved» by the state and was moved into the «waiting hands» in the course of a relatively short period that lasted about a year.
This shows that Akorda and the National Bank have learned their lessons from the previous mistakes which, first of all, means that the next local financial institute will be «saved», in other words, will change its owner and top-management in the course of several months.
First, let us present the timeline of the events connected to the Tsesnabank case.
It is, we believe, is more than indicative.
June 30, 2017. The management of the National Bank approves «The Program for Increasing Financial Stability in the Banking Sector of the Republic of Kazakhstan». As part of the latter, Tsesnabank JSC received 100 bln tenge for the period of 15 years with 4% annual interest rate.
March 14, 2018 Tsesnabank JSC and Financial Holding Tsesna JSC sell their portfolios in Bank CenterCredit JSC (29.56% of the listed ordinary shares) to major Bank CsnterCredit’s shareholders Bakhytbek Bayseitov and Vladislav Li as well as to a group of minority shareholders. The Bank CenterCredit sale transaction was cancelled.
May 14, 2018. Based on the decision of Tsesnabank’s Board of Directors, Erzhan Tadzhiyakov was released from his duties as the Chairman of the Management Board and Erzhan Toleubekov was appointed instead. Tadzhiyakov was moved to the positions of the Chairman of the Management Board and of a member of the Board of Directors of Financial Holding Tsesna JSC as well as of a member of the Board of Directors of Insurance Company Tsesna-Garant JSC.
July — August 2018. Tsesnabank’s major clients from among the quasi-governmental structures had simultaneously requested to withdraw a substantial part of their deposits. Based on the information we have, these were national companies controlled by NWF Samruk-Kazyna and the total volume of the funds withdrawn constituted about US1 $ bln.
August 2018. Tsesnabank JSC borrows a short-term loan in the amount of 150 bln tenge from the National Bank of Kazakhstan. On September 5, 2018, a part of this loan in the amount of 100 bln tenge is repaid.
September 2018. Due to the frenzy caused by the leak of the information on Tsesnabank’s problems, the number of the withdrawal requests on the part of legal and physical bodies increases increased dramatically. In view of this, the National Bank agrees to renew Tsesnabank’s credit line, moreover, increases its size up to 200 bln tenge.
September 10, 2018. Based on the Order of President Nursultan Nazarbayev, Adilbek Dzhaksybekov was released from the post of the head of the Presidential Administration due the retirement age. On the same day, Dzhaksybekov was elected the Chairman of the Board of Directors of the Tsesna Corporation.
September 14, 2018. Based on the decision of Tsesnabank’s Board of Directors, Erzhan Toleubekov was released form his responsibilities as the Chairman of the Management Board; Ulf Wokurka was appointed instead.
September 19, 2018. The Kazakh Government and the National Bank made a decision to buy a part of the loans provided by Tsesnabank to the acricultural sector in the amount of 450 bln tenge, The Problem Loans Fund JSC was the purchaser of the said assets.
September 24, 2018. Based on the decision of the shareholders’ emergency meeting, Dauren Dzhaksybekov was released from his post of Tsesnabank’s Chairman of the Board of Directors; Kayrat Satylganov who had been a member of the Board since 2013 was elected instead.
September 24, 2018. It was announced that Tsesnabank’s shareholders had already replenished it with additional capital in the amount of 35.3 bln tenge and they only needed to add 4.7 bln to fulfill their obligation.
October 2, 2018. The National Bank of Kazakhstan registered the fifth Tsesnabank’s security program in the amount of 500 bln tenge.
October 18, 2018. Dauren Zhaksybek (a majority shareholder and Adilbek Dzhaksybekov’s son) and Jacek Brzezinski were expelled from the Board of Directors. Ulf Wokurka and Ulan Bayzhanov who became the Board of Directors’ Chairman were elected instead.
November 9, 2018. The National Bank of Kazakhstan registers the changes in the Prospectus of Tsesnabank’s share issue: the number of the announced shares was increased by 418 mln to 700 mln shares. Ensuring the increase of the bank’s capita in the amount of 40 bln tenge was announced as the goal of the issue.
January 10, 2019. Ulan Bayzhanov is released from the post of the Chairman of the Board of Directors of Tsesnabank; Nikolay Mescheryzkov, one of Adilbek Dzhaksybekov’s closest allies who had been a member of the Board of Directors since 2008 and the first Chairman of the Management Board, becomes his successor.
January 25, 2019. Announcements that Akorda is looking for a buyer for Tsesnabank JSC appear.
We do not know the exact date when the Kazakh Government and the National Bank made a decision to buy Tsesnabank’s loans given to the agricultural sector, but we do know it happened at the end of January 2019. The Problem Loans Fund JSC was to act as the buyer of the assets.
January 23, 2019. The Problem Loans Fund lists 1000 tenge NV bonds with 15 years maturity and 9% annual interest rate in the amount of 604 bln tenge.
In the issue prospectus, it is stipulated that all the funds received from the said listing will be used for the purchasing of Tsesnabank’s assets.
January 25, 2019. It is announced that the KASE is trading the Problem Loans Fund’s securities in the amount of 604 bln tenge. Later, it will be announced that the trading session has been moved to January 28, 2019.
January 28, 2019. It is announced that the KASE is trading the Problem Loans Fund’s securities in the amount of 604 bln tenge. Later, it will be announced that the trading session has been moved to January 29, 2019.
January 29, 2019. It is announced that KASE is trading the Problem Loans Fund’s securities in the amount of 604 bln tenge. Next day, it will be announced that that the trading has been rendered invalid.
January 29, 2019. Tsesnabank JSC, acting upon the approval of the securities’ purchaser (National Bank) has made changes in the terms and conditions of the issue of its securities with a maturity of October 15, 2028 having increased the maturity from 10 years to 15 years and three months and reducing the coupon rate from 4% to 0,1%.
January 30, 2019. It is announced that KASE is trading the Problem Loans Fund’s securities in the amount of 604 bln. Later, it will be announced that that the trading has been rendered invalid.
January 31, 2019. At 5.29 p.m. local time, it is announced that, on February 1, the KASE will be trading the Problem Loans Fund’s securities in the amount of 604 bln tenge.
February 1, 2019. The National Bank’s Management Board issues Decree 24 of February 1, 2019, «On giving permission for acquiring the status of the banking holding of Tsesnabank JSC to First Heartland Securities JSC».
February 1, 2019. The National Bank’s Management Board approves Decree 25 of February 1, 2019, «On giving permission to First Heartland Securities to purchase the affiliated structure — Tsesnabank JSC.
February 1, 2019. Adilbek Dzhaksybekov and other shareholders sold 99,5% of Tsesnabank’s shares to First Heartland Securities JSC (FHS, previously — ZIM Capital JSC). The latter is a part of the First Heartland Group that also includes First Heartland Bank and the company for the management of First Heartland Capital’s investments funds. In its turn, First Heartland is controlled by the group of companies that includes Nazarbayev University, Nazarbayev Intellectual Schools, and Nazarbayev Foundation.
February 1, 2019. At 5.16 p.m. local time, it is announced that the KASE is to trade the Problem Loans Funds securities in the amount of 604 bln tenge.
February 1, 2019. At 6.55 p.m. local time, it is announced that the special trading session on the listing of the Problem Loans Fund’s securities in the amount of 604 bln tenge has taken place.
February 2, 2019. S& P Global Ratings reduces Tsesnabank’s long-term and short-term credit ratings from «B-/B» to «SD» and the bank’s national scale rating from «kzBB-» to «SD» (in other words, to the limited default status) due to the restructuring of the securities conducted on January 29, 2019. Apart from that, S& P reduced Tsesnabank’s senior unsecured ratings from «B-» to «CC» and from «kzBB-» to «kzCC» and added them to the CreditWatch Negative list.
February 4, 2019. Tsesnabank’s Board of Directors makes a decision to list the bank’s ordinary shares in order to comply with the prudential standards. In accordance with the right of the first refusal, the bank offered its shareholders to buy 39.4 mln of the listed ordinary shares for 1782 tenge per share with the total amount of 70.2 bln tenge.
February 6, 2019. The National Bank announces the purchasing of the agricultural sector loans from Tsesnabank in the amount of 604 bln tenge. On February 8, 2019, the Problem Loans Fund makes the same announcement.
February 7, 2019. The configuration of Tsesnabank’s Board of Directors changes. Nikolay Mescheryakov (Chairman), Ulf Wokurka and Eduard Babayan were expelled; Shigeo Katsu (acting Chairman), Evgeniy Pan and Daulet Kabylbayev were elected.
February 7, 2019. Tsesnabank’s Management Board has been changed. Ulf Wokurka (Chairman), Dmitry Li (Deputy Chaitman), Alnur Kitapbayev (Deputy Chairman), Timur Ayapbergenov and George Stamenkovich were expelled and replaced with Bekzhan Pirmatov (Chairman), Askar Khamidullin (Deputy Chairman), Zharkinbek Azbekov (Deputy Chairman).
The subject of for what price and under what conditions Tsesnabank JSC was sold to the previously unknown First Heartland Securities by the former’s ex-owners i.e. ex-Chief of the Presidential Administration Adilbek Dzhaksybekov and his relatives will be investigated in a separate research. For now, we will only point out how fast can the fate of even a big bank may be determined in Kazakhstan even when the victim has neither desire nor possibilities to show resistance.
Of course, the in-depth analysis of the Tsesnabank case should begin with assessing the bank’s state of affairs from the moment of its creation and up until today in real time mode. However, what we are interested in in this case is the logics of Akorda’s and others’ actions when the bank was first «drowned» and then «saved» by the state. Therefore, we will limit ourselves to the period from March 14, 2018 and till February 7, 2019. It was in this period that Tsesnabank JSC and Financial Holding Tsesna JSC sold their shares of Bank CenterCredit JSC to the latter’s shareholders.
Previously, we have already touched upon this subject several times analyzing the reasons for the disagreement and then even the conflict between the majority shareholders of these two financial institutes (for more information, see Dzaksybekov’s Defeat, BCC: Tempers Are Running High и On Bakhytbek Bayseitov’s Big Problems ).
In a nutshell, Bakhybek Bayseitov who, after the foreign investors had left Bank CenterCredit JSC, owned 43,89% of ordinary voting shares and wanted to «sell himself» to the Tsesnabank group controlling 29,56% of BCC’s ordinary voting shares suddenly found himself under the harsh pressing on the part of Dauren Zhaksybek.
The then Chairman of Tsesnabank’s Board of Directors insisted that Bayseitov attracted (or invested himself) US300 $ mln in Bank CenterCredit JSC since, in his opinion, BCC’s real financial standing turned out to be worse than it was registered on paper. With that, the 60 bln tenge of the state support received by Bank CenterCredit JSC from the National Bank of Kazakhstan in 2017 did not cardinally change the situation.
However, Bayseitov refused to back down due to the simple reason that he did not have an opportunity to fulfill this demand. As a result, a hidden conflict began that could have unfolded according to very different scenarios including those disadvantageous and even dangerous not only to Bank CenterCredit’s majority shareholder but to Tsesnabank’s owners as well.
As a result, it all ended rather peacefully — the parties continued to hold on to their own interests and assets. Nonetheless, judging by the further developments, Dauren Dzhaksybekov’s demand that Bakhytbek Bayseitov must invest US300 $ mln was not at all accidental, nor was the later decision of the transaction’s participants to withdraw from it.
It is very likely that the purchase of Bank CenterCredit JSC without increasing its capital in advance could have «drowned» Tsesnabank JSC. In his turn, Bakhytbek Bayseitov had realized that his hopes to save his fortune via selling the bank to Akorda’s influential Adilbek Dzhaksybekov may turn out to be risker than an attempt to «swim ashore» by himself. It is for this reason that we have chosen March 14, 2018, as the starting point of our analysis.
Two months after the aforementioned «divorce», on May 14, 2018, Tsesnabank’s Board of Directors released Erzhan Tadzhiyakov from the duties of the Chairman of the Management Board and appointed Erzhan Toleubekov instead. In our opinion, this fact shows that the majority shareholders decided to save the financial institute via the traditional Kazakh way — by replacing a top-manager. With that, in order not to scare the market and the National Bank of Kazakhstan, Tadzhiyakov was immediately appointed the Chairman of the Management Board and a member of the Board of Directors of Financial Holding Tsesna JSC as well as a member of the Board of Directors of Insurance Company Tsesna-Garant JSC.
However, in July — August 2018, the national companies included in the Samruk-Kazyna NWF group had withdrawn about US1 $ bln from Tsesnabank’s deposits.
The reasons for such actions on the part of the state holding’s management is well-known: Akhmetzhan Esimov appointed Chairman of the Management Board of NWF Samruk-Kazyna on December 23, 2017, immediately started reforming it in a cardinal way. Among other things, he changed the organizational structure of the central apparatus, replaced almost entire top-management, notably reduced the expenses, the debtor and creditor indebtedness as well as the volume of the temporary available cash assets kept in banks.
Consequently to the US1 $ bln outflow, Tsesnabank started experiencing problems with liquidity. The clients started leaving the bank on a massive scale. In light of this, in September 2018, the National Bank of Kazakhstan did not simply preserve the credit line already provided to Tsesnabank but increased it from 150 to 200 bln tenge. However, even this emergency support did not help.
And then, on September 10, 2018, Adilbek Dzhaksybekov immediately and unexpectedly leaves the chair of the Chef of the Presidential Administration and then, on the same day, returns to business becoming the Chairman of the Board of Directors of the Tsesna Corporation.
Judging by the speed of the developments, at that point, the situation in Tsesnabank JSC was already critical. It is for this reason that Dzhaksybekov, Sr, could not delay things any longer and could not allow himself to have at least a one-day break between retiring and starting his new job. Logically, the return to the business of such a famous and influential person should have soothed the market and Tsesnabank’s clients but, alas, the result turned out to be opposite of what was expected.
For this reason, Adilbek Dzhaksybekov and other Tsesnabank’s shareholders were forced to replace the top-manager once again. On September 14, 2018, Ulf Wokurka replaced Erzhan Toleubekov as the Chairman of the Management Board. And on September 19, 2018, the Government and the National Bank of Kazakhstan suddenly (and against Nursultan Nazarbayev’s previous orders to stop spending the taxpayers’ money on saving insolvent banks) made a decision to buy a part of agricultural sector loans from Tsesnabank JSC in the amount of 450 bln tenge.
In our opinion, this state support was a part of Adilbek Dzhaksybekov’s pension package and was sanctioned on the very top. The state support in the amount of 600 bln tenge (100 bln tenge from the National Bank of Kazakhstan in 2017 plus 50 bln tenge left from the NBK’s funds given in September 2018 and 450 bln tenge received from the Problem Loans Fund JSC) should have been enough to stabilize the situation.
Simultaneously, yet another personnel decisions had been made in order to strengthen the top-management. On September 24, 2019, based on the decision of the emergency shareholders meeting, Dauren Zhaksybek was released from his post as the Chairmen of the Board of Directors of Tsesnabank JSC. Kayrat Satylganov, who was older and a great deal more experienced was appointed instead. A little later, on October 18, 2018, the Board of Directors was changed in a cardinal fashion: Ulf Wokurka and Ulan Bayzhanov who became the Chairman of the Board of Directors were elected instead of Dauren Zhaksybek and Jacek Brzezinski.
Tsesnabank’s shareholders also tried to convince the market and their clients that the state of affairs had changed for the best. By the looks of it, it is for this reason that, on September 24, 2018, it was announced that Tsesnabank’s shareholders had increased the bank’s capital by 35.3 bln tenge and they only needed to invest 4.7 bln in order to fulfill their obligations. Perhaps this news was somewhat premature since the National Bank of Kazakhstan had registered the changes in the Prospect of Tsesnabank’s Securities Issue as part of which the number of the announced shares had increased up to 700 mln only on November 9, 2018.
On October 2, 2018, the National Bank of Kazakhstan registered the fifths security program of Tsesnabank JSC in the amount of 500 bln tenge. One may suppose that if these securities were purchased by the investors in their total volume, then the financial standing of the issuer would have been stabilized. However, judging by the further developments, something went wrong. Or perhaps some forces playing against Adilbek Dzhaksybekov or/and wishing to deceive him interfered as well.
To confirm our idea, we will mention yet another personnel reshuffles in Tsensabank’s management that took place on January 10, 2019, when Ulan Bayzhanov was suddenly released from his duties as the Chairman of the Board of Directors of Tsesnabank JSC. Note that Nikolay Mescheryakov, one of Adilbek Dzhaksybekov’s closest and most loyal allies who was a member of the bank’s Board of Directors from 2008 and the first Chairman of the Management Board, became his successor.
It looks like Bayzhanov had decided (understood, realized) that Tsesnabank JSC couldn’t be saved, therefore, he decided not to «drown» together with it. The appropriateness and timeliness of his decision was confirmed by the January 25, 2019, press announcements that Akorda was looking for a buyer for Tsesnabank JSC.
Unfortunately, we have not been able to establish the exact date when the government and the National Bank of the Republic of Kazakhstan (obviously, with the approval of Nazarbayev since this is the only way things are done in Kazakhstan) made a decision to buy the loans provided to the agricultural sector from Tsesnabank JSC in the amount of 604 bln tenge,
However, already on January 23, 2019, at the KASE, the Problem Loans Fund listed the securities of 1000 tenge NV with 15 years maturity rate and 9% annual rate in total amount of 604 bln tenge. The Prospectus of the issue stipulated that all the funds obtained as a result of the said listing would be used for acquiring the agricultural sector loans from Tsesnabank JSC.
Apart from that, Tsesnabank JSC received the support from the National Bank that agreed to change the terms and conditions of the securities issue purchased by the regulator as part of The Kazakh Banking Sector’s Financial Stability Increase Program. On January 29, 2019, Tsesnabank made the changes in the prospectus having increased the maturity rate of its securities from 10 years to 15 years and three months and having reduced the coupon rate from 4% to 0,1%.
Nonetheless, sometime around January 20, 2019, a mayhem surrounded Tsesnabank JSC. This mayhem would have been impossible had it not been for someone extremely influential wanting to pressurize the majority shareholders i.e. Adilbek Dzhaksybekov and his close relatives. As a result of their actions, the KASE special trading session, first scheduled for January 25, 2019, had been rescheduled numerous times and, eventually, took place on February 1, 2019. Note that this happened already after the sale of 99,5% of Tsesnabank’s shares to First Heartland Securities JSC had been completed.
A casual observer cannot but be astounded by the density of the events that took place on February 1, 2019.
First, the Management Board of the National Bank of the Republic of Kazakhstan approves Decrees 24 and 25 on letting First Heartland Securities JSC purchase the banking holding status for Tsesnabank JSC and on giving permission to buy the said financial institute. Then Adilbek Dzhaksybekov and other shareholders sold 99,5% of Tsesnabank’s shares to First Heartland Securities. A little later, at 5.16 p.m. local time, it was announced that the KASE is to trade the Problem Loans Fund’s securities in the amount of 604 bln tenge and, as early as 6.55 p.m., it was announced that the trading had been successful.
The events developed so fast that, for instance, S& P Global Ratings was simply unable to follow them. On February 2, 2019, it reduced Tsesnabank’s long-term and short-term credit ratings from «B-/B» to «SD» and it also reduced its national scale rating from «kzBB-» to «SD» in other words to a limited default status. The agency cited the restructuring of the securities issue happened on January 29. Even though on February 2, it became clear that Tsesnabank had been saved and sold to the «good hands».
To be continued