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. Last Updated: 07/27/2016

Kazakhstan Nationalizes Top Bank

ReutersKazakhstan is in talks with Sberbank to sell part of the 78 percent stake that it bought on Monday in BTA bank.
ASTANA, Kazakhstan -- Kazakhstan effectively nationalized its top bank BTA and sacked a former opposition leader as its key manager on Monday as a deepening financial crisis acquired political undertones in Central Asia's biggest economy.

The government said it would pay 251 billion tenge ($2.1 billion) for 78.14 percent of shares in BTA, which has assets of $31 billion, to boost its capital by more than $2 billion.

Prime Minister Karim Masimov told a Cabinet meeting that Kazakhstan might sell part of its BTA stake once the transaction was over, adding that the government was in talks with Sberbank on this.

A source close to the talks said a senior Sberbank management team had flown to Kazakhstan to discuss a potential takeover. Sberbank declined to comment.

Separately, the government said it was looking to rescue No. 4 bank Alliance Bank by buying 76 percent of the shares from its key shareholder for a symbolic sum of less than $1 and a $200 million deposit into its accounts to boost liquidity.

Injecting political spin into the shake-up, the state financial regulator dismissed Mukhtar Ablyazov, BTA chairman and a former opposition leader, as part of the takeover.

Ablyazov, a founding father of a local opposition party who was briefly jailed in 2002, lashed out at the authorities after the move, accusing the state of "corporate raiding."

"Today's actions by the government against BTA represent abuse of power and corporate raiding," Ablyazov, who has no direct interest in BTA and denied being a shareholder, said in a statement, the authenticity of which was confirmed by BTA.

Reflecting uncertainty over its highly leveraged banks, the cost of insuring Kazakh sovereign debt in the credit default swaps market shot up on Monday, with five-year CDS quoted around 200 basis points wider from Friday's close at 950-1050.

Like most local banks, BTA has been grappling to survive in tighter credit conditions after the global crunch ended oil-producing Kazakhstan's double-digit economic growth and crippled its once-vibrant banking industry.

A looming recession is a worry to President Nursultan Nazarbayev who, while being criticized in the West for brooking no dissent, has been popular at home because of rising incomes.

Ablyazov's departure heralds a shift of power in Kazakh business, a worrying trend for investors relying on continuity of policy and balance of power in the Kazakh economy.

The move is also a concern from a broader economic point of view at a time when oil prices are falling and the central bank is expected to embark on a gradual depreciation of the tenge.

"The market will ... fret over the impact on the state's balance sheet from the latest bank bailouts and whether this will threaten to diminish the sovereign's war chest of forex reserve," RBS analysts wrote in a note.

The government, however, warned against describing Monday's announcements as nationalization, saying it would acquire BTA shares only on a temporary basis.

In a statement, the government said Ablyazov was dismissed as BTA chairman because his work had violated "the interests of bank depositors and creditors as well as existing legislation."

Ablyazov fell out with Nazarbayev in 2002 over what he described at the time as a lack of democracy in Kazakhstan; he was briefly jailed in 2002 on corruption charges. Eventually pardoned, he quit politics and focused on BTA.

The government dismissed his objections. "We cannot talk about corporate raiding because everything is done within the framework of law," Finance Minister Bolat Zhamishev said.