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May 28 (Bloomberg) -- From his secret hideaway, BTA Bank’s former Chairman Mukhtar Ablyazov says Kazakhstan’s government caused the default of the nation’s largest lender. Kazakh prosecutors want him for allegedly embezzling the bank’s money.

The biggest losers in the dispute may be investors who poured into the former Soviet state as crude oil rose to a record and the economy grew 10 percent annually for eight years. Now, with petroleum prices down and the recession starving banks of credit, Kazakhstan’s image as a beacon of rising capitalism is being shattered by three banking defaults in six weeks.

“Once you lose the confidence of investors, people don’t trust you anymore,” said Harald Oberkirch, a travel-company operator on the Spanish island of Majorca, who bought $300,000 worth of BTA’s bonds as part of a more than $1 million investment in Kazakh bank debt. “Bankruptcy is near.”

Ablyazov, 46, fled in February before the government issued an arrest warrant, alleging he stole from the bank and laundered the money through loans to fictitious companies. Bloomberg spoke to him on a call organized by his London-based public-relations firm, Hudson Sandler Financial & Corporate Communications. He wouldn’t say where he was.

“All stakeholders in BTA, including international lenders, shareholders, customers and employees, have been victims of the Kazakhstan government’s criminal recklessness,” Ablyazov said. “The tragedy is that these huge losses could and should have been avoided. All the foreign markets are closed to Kazakh companies and will remain closed to them for up to five years.”

BTA Takeover

President Nursultan Nazarbayev’s government initiated a takeover of BTA in February, using cash from the state’s National Wellbeing Fund Samruk-Kazyna to buy a 75.1 percent stake. That sparked charges and counter-charges between the administration and the bankers who were pushed out. Nikolai Galikhin, deputy head of Nazarbayev’s press office, declined to comment on Ablyazov’s allegations.

The crisis in Kazakhstan is a legacy of banks that piled on debt as the economy soared and couldn’t repay when credit dried up. Gross domestic product shrank 2.2 percent in the first quarter. Foreign investors are drawing back capital as their favorable terms with lenders evaporate, said Kieran Curtis, who helps manage $800 million in emerging-market debt at Aviva Investors Ltd. in London, including Kazakh bonds.

Ratings Report

Kazakh banks must repay almost 40 percent of their $41 billion in debt in the next 12 months, data compiled by Bloomberg show. Moody’s Investors Service said last week that it may cut the ratings of five Kazakh financial companies on concern the government won’t help stave off default. The benchmark stock index dropped 57 percent in the past year.

BTA bondholders have been waiting more than a month for details of a debt restructuring. In addition, Almaty-based Alliance Bank, Kazakhstan’s fourth-largest lender, and Astana Finance, owned in part by the government, have stopped making creditor payments.

“Kazakhstan was the great hope for pro-Western investments,” said Lauren Goodrich, a senior Eurasian analyst at Stratfor, a global intelligence company in Austin, Texas. “Now those aspirations are being picked off one by one, and the country is looking less and less like a great hope. It’s completely changing.”

Investment in Kazakhstan increased 25 percent last year, to $10.7 billion, the fifth-biggest gain among 21 developing nations tracked by New York-based CEIC Data Co. Only South Africa, Hungary, Russia and India grew faster.

Oil Play

“The appeal was simple,” said Aivaras Abromavicius, a Moscow-based portfolio manager for East Capital Asset Management, who plans to hold on to the firm’s one percent stake in BTA. “With oil at $100 and rising, it was very clear that anyone involved in the production of that commodity would benefit massively.”

And they did. Almaty-based BTA sold $350 million of U.S. dollar-denominated 10-year bonds at 4.59 percentage points over Treasuries in January 2005 compared with 3.17 percentage points for high-yield or emerging-market debt at the time, according to Merrill Lynch & Co. indexes. The company’s credit rating was lifted three times from 2000 to 2006 by Standard & Poor’s to as high as BB, two levels below investment grade. The KASE Index rose 26-fold from its creation in 2000 to the end of 2007.

Kazakhstan also benefited because its investment regulations were considered “head and shoulders” above those of regimes in other developing economies, said Ian McCall, who helps manage $800 million of emerging-market debt at Argo Capital Management Ltd. in London.

Accounting Rules

Most Kazakh banks have reported results since 2003 that conform to rules devised by the London-based International Accounting Standards Board, according to Deloitte & Touche LLP. Russia introduced such rules for commercial lenders in 2004 and has delayed a full transition to the standard until 2011, Deloitte said.

While regulations were catching up to Western standards, the country’s banks were also embracing a “culture of cheap credit,” said Chris Weafer, chief strategist in Moscow at UralSib Financial Corp., Russia’s third-biggest private bank.

“They promoted the place aggressively, they adopted these European standards and they tried to get rid of the Soviet baggage,” he said. “People were looking at Kazakhstan too superficially.”

A nation of more than 15 million people wedged between China and Russia, Kazakhstan has been ruled since Soviet days by pro-Russian Nazarbayev, 68. His Nur Otan party won 88 percent of the vote in parliamentary elections in August 2007, when not a single opposition candidate garnered a seat.

‘Pervasive Corruption’

The U.S. State Department’s report on human rights for Kazakhstan in March 2008 criticized the regime for “severe limits on citizens’ rights to change their government,” as well as “pervasive corruption.”

The Kazakh government added BTA’s former chief executive officer, Roman Solodchenko, to its wanted list in March, and prosecutors said they identified 32 suspects in the case. Ablyazov said the charges against him were fabricated.

Ainagul Shakirova, an Astana-based spokeswoman for Prime Minister Karim Masimov, declined to comment. Azamat Kenzhe, a spokesman for the Agency for Financial Supervision, wasn’t available for comment.

Ablyazov has faced government charges before. He was sent to prison in 2002 on allegations that he enriched himself as energy minister. He was pardoned 10 months later by Nazarbayev after allegedly being beaten and abused in prison, London-based Amnesty International said in a report.

Riding the Wave

Nazarbayev’s government originally sold BTA to Ablyazov for $72 million in March 1998. The banker reclaimed the helm in 2005, two years after his jail term ended. He built up the business by riding the wave of foreign money that was attracted to Kazakhstan after the discovery of the Kashagan oil field in 2000, the biggest new field found in 30 years.

Assets grew to about $25 billion in 2008, according to Kazakhstan’s financial regulator, from $7.5 billion in 2005, when BTA was known as Bank TuranAlem. It raised more than $10 billion in foreign debt from 2003 to 2008, according to data compiled by Bloomberg.

BTA became a “victim of its own P.R.,” UralSib’s Weafer said. “The problem is that Kazakhstan is still an emerging market and developing markets still have bad practices underneath the visible reforms.”

Shareholder Suits

The bank reported a loss of 261.5 billion tenge ($1.7 billion) in the first quarter. New CEO Anvar Saidenov told bondholders on a conference call April 28 that it had uncovered speculative derivatives transactions that may have overstated assets on the balance sheet.

BTA shareholders KT Asia Investment Group BV, based in Amsterdam, and Vienna-based GEM Equity Management AG filed complaints against the government with arbitration bodies of the United Nations and World Bank, alleging the state takeover violated international investment treaties and seeking $3 billion in compensation.

Marek Randma, portfolio manager at Helsinki-based Evli Fund Management Ltd., whose Evli New Republics Fund has 644 shares in BTA, says the firm holds its stake because “Kazakhstan’s main investment case -- its abundant resources -- is still intact.”

The country controls an estimated 3.2 percent of the world’s oil reserves, according to BP Plc.

Kazakhstan’s eight-stock KASE Index added 34 percent in the past month, the fifth best-performing global benchmark. S&P took the country’s credit rating off “negative” on May 8, removing the threat of a cut to a non-investment grade ranking.

Government Investment

Nazarbayev’s government has put about $5 billion into the banking system, said Kairat Kelimbetov, head of Samruk-Kazyna. The fund will await BTA’s debt-restructuring due in June before deciding whether to inject more into the lender, he said.

“Banks have clearly over-borrowed in the boom times,” Grigori Marchenko, National Bank of Kazakhstan governor, said in an interview in London. “Investors were fully aware about some problems that the Kazakh banking sector was facing, but they still pumped a record amount of money in Kazakhstan.”

Kazakhstan is seeking funds from South Korea, Abu Dhabi and Russia to stabilize its banking and energy industries, according to Samruk-Kazyna. The fund is in talks to sell part of its BTA stake to Moscow-based OAO Sberbank, Russia’s biggest lender, Kelimbetov said. Sherbank wants the fund to remain a shareholder in BTA, he said in Astana today.

BTA’s downfall is rippling through the economy.

Anargul Birzhanova, an assistant hotel manager in the capital of Astana, has held off opening a savings account because it is “very frightening to deposit money now.”

“In my neighborhood in the Astana suburbs, I haven’t heard recently about anyone who was able to get a bank loan,” said Birzhanova, 23. “We feel the panic.”


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It's how Ali G spelt respect?

Is this a link to another SBC character?

Anyway, it looks like BTA is bust and people have lost loads of money in a Kazakhstanian Ponzi.

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Is this a link to another SBC character?

You'll have to share your cookie with Khun Pan below you. :)

All the world's an indirect reference, and all the properties and methods merely void pointers.

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Kazakhstan is a extremely openly corrupt country.

Two of president Nazarbayev's opposition have been found dead in suspicious circumstances and there is also a warrant out for his son-in-law's arrest - not long after his son in law came out saying that he would like to stand for president.

Nazarbayev recently changed consititution in Kaz so he can stand as many times as he wants to (it was previously only a maximum of 2 terms) so hes pretty much set up as president for life, as long as he can always pass the blame onto someone else.

All this article shows is that he is doing exactly that.

Just like Brown is blaming the US for all our problems, Nazarbayev is blaming Ablyazov.

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Guest มร หล&#3
You'll have to share your cookie with Khun Pan below you. :)

All the world's an indirect reference, and all the properties and methods merely void pointers.

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All this article shows is that he is doing exactly that.

It's all fun and games until someone lends you $41bn on short-dated maturities.

(at least they didn't go down the Albanian "epic MLM fail" route, this is just good old fashioned despotism)

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