Who will gain from the merger of banks?

A key deal for a Kazakhstani banking sector, concerning the purchase of Kazkom by the People’s Bank of Kazakhstan, is taking shape.

The following was concluded from the latest public statements of the chairperson of the People’s Bank Umut Shayakhmetova and deputy head of the National Bank of KR Oleg Smoliakov:

  • if the People’s Bank acquires Kazkommercbank, will not be liquidated or merged, but would rather become a subsidiary company of the former
  • the proposed deal has a friendly character, and the possibility of it happening is 80%
  • a proposition of the sale of Kazkommercbank came from Kenes Rakishev
  • as part of the future deal, the loan that was given by Kazkommercbank to BTA Bank will be deconsolidated from the balance of the former, by the way of bailout by Fund for Bad Loans, a system operator in this sphere
  • funds allocated by the government for the capitalisation of the Fund for Bad Loans, will not be directly transferred to Kazkommercbank, but will go towards buying the equity of BTA Bank
  • People’s bank will participate with its own capital, if the deal takes place
  • the deal will take a long time to complete and the final decision will be made after a 2-3 months-long due diligence.

Judging from the abovementioned, the following forecasts can be made:

  • The due diligence of Kazkommercbank (Kazkom From here on) may take longer than 3 months, since People’s Bank of Kazakhstan, as a potential buyer, is interested in acquiring the most accurate information on the deal, as well as in the decrease in the sale price.
  • After due diligence, there will be a final round of talks, in which Akorda and National Bank will play a major role as operators of the deal.
  • Acquisition of Kazkom by the People’s Bank will in fact happen, because the former will use this deal to not only get rid of one of their main market opponents, but will also gain much from it – we will describe how below.
  • Parameters of the deal, and first of all the evaluation of Kazkom and establishment of the sum that Kenes Rakishev will get for the controlling stake in the company, will depend on the political decision of president Nazarbaev.
  • When making a political decision, the president will focus not only on the position of the National Bank and economic factor, but also on the political weight of Mr. Tasmagambetov, a current ambassador of Kazakh Republic to Russia, who is a father-in-law of Rakishev.

As for the deal itself, its stages look like this:

  1. Based on the results of due diligence, a real evaluation of financial value of Kazkom will be made, which we assume will be equal to zero, or even have a negative number.
  2. After establishing the financial value of Kazkom the talks between People’s Bank and Rakishev will start, under the facilitation of the National Bank.

However, it is worth mentioning, that the hands of participants of the deal will be tied at this stage. As of Sep. 30th 2016, the amount of loans, allocated by Kazkom to its key management staff, amounted to 2503 trillion tenge. At the same time, the overall sum of money, allowed in the governmental budget for 2017, for bailing out of the banking sector was 2094 tril. tenge. The capital of Kazkom as of Dec. 1 2016, was 460 bil. tenge.

These numbers mean that even if the Fund for Bad Loans will take on the debt to Kazkom of BTA Bank to the whole sum, the capital of the former will be lost, or lower by 100 bil. tenge. Considering that this estimate was done without accounting for Kazkom’s problems with non-repayment of debt, its real value will be known only to participants of deal and National Bank.

  1. During Rakishev’s talks with the People’s Bank the former will most likely insist, not as much on the increase of the direct sale price, but more on the options on lowering direct losses – such as not selling his entire share at the bank, but only the controlling stake. This will later allow him to gain from the rise in the market price of his remaining stake at the bank.
  2. After the conclusion of talks, which will take a relatively short time, and signing a deal on the sale of shares and stake, Fund for Bad Loans, will buy Kazkom’s loan to BTA Bank or equity of BTA, after which a sum of 2-2.1 tril. or so will be sent to Kazkom’s account.
  3. The Fund for Bad Loans will attain BTA’s equity, and thus its issues with payment of loans, reviving or ending business projects and retail sales will once again be put on Kazakhstani government, which seemingly will become a sole shareholder of this quasi-governmental company.

Thus National Bank, will acquire as a financial daughter institution, a clean bank with a liquidity potential of giant proportions. Since, these funds will likely be deposited in the National Bank, with a 10% rate; this is equivalent to there being a giant deposit of oil or gold under National Bank’s HQ. Therefore, this fact will be appreciated by international financial organizations and rating agencies, and will have a positive impact on the well-being of the majority shareholders of the National Bank of Kazakhstan, i.e. Dinara and Timur Kulibaev.


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