ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Kazakhstan-Based BTA Bank Assigned ‘B/B’ And ‘kzBB’ Ratings; Outlook Stable

          MOSCOW (S&P Global Ratings) Oct. 11, 2018--S&P Global Ratings said today that it 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 US$70 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 US$700 million, which indicates some upside against the current book value of less than US$500 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 US$5 billion, of which around US$1 billion has been recovered to date. BTA continues recovering assets (e.g., in February 2018 it received around US$38.5 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 US$200 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. 
          We believe that revaluation risk per se is not important for BTA, even though the group is exposed to property markets in Russia and Kazakhstan. This is because BTA is unregulated and in the absence of debt is less exposed to confidence swings of creditors. However, failure to sell the assets in time for a given price can hamper the group's strategy and lead to material changes in cash flow projections. 
          The outlook on BTA is stable, reflecting our expectations that the group will continue to gradually work out its problem assets and that the group's cash proceeds will be sufficient to cover its liquidity needs within the next 12 months. 
          A negative rating action may follow if, contrary to our expectations, we see BTA failing to dispose of repossessed assets in the next 12-18 months, which would lead to erosion of cash cushions and the need to attract additional debt to service litigation costs (which we consider to be nondiscretionary). An increase in debt at the level of other subsidiaries could also negatively affect the ratings. 
          We may raise our ratings on BTA if we see the group increasing its cash-generation ability, successfully implementing its strategy of developing warehouse business in Russia. An upgrade may also result from stronger-than-expected recovery of assets resulting in faster reduction of debt levels or accumulation of excess liquidity of the group. Given the short track record, however, we consider an upgrade to be unlikely at this time.