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It’s understandable that BTA’s long-suffering creditors are furious that Kazakhstan’s third biggest bank has defaulted so soon after the 2010 restructuring when they succumbed to massive haircuts.

But what can they do about it except rant and rave?

BTA’s failure on Wednesday to meet the final deadline for payment of a $160m coupon on its $2bn eurobond was hardly a surprise. The bank that is majority owned by Samruk-Kazyna, Kazakhstan’s sovereign wealth fund, asked creditors to consider a second debt restructuring last month, warning it could face a capital shortfall of $5.1bn by the end of 2012 unless urgent action was taken.

But creditors are angry that BTA feels unable to pay its bills. Only last November the bank reported having $700m of liquid assets as well as about $1bn of bonds eligible for repo with Kazakhstan’s National Bank. “They could easily have paid but chose not to,” said one creditor who asked not to be named.

International ratings agencies downgraded BTA to junk last month so there’s not much more they can say. Moody’s turned the knife this week warning that Kazakhstan’s reputation was at risk if BTA went into default:

A disorderly default of a large government-controlled bank is credit negative, not only for BTA, but for the whole banking system as it undermines investor confidence in Kazakh lenders and may call into question the government’s commitment to support foreign investments.

BTA has called a shareholders’ meeting on January 26 to discuss the proposed restructuring. The bank needs the approval of two thirds of global depository receipt holders who vote at the meeting before it can start restructuring talks. Creditors who wrote down more than $7bn of debt in BTA’s 2010 restructuring don’t want to accept further haircuts but may find themselves caught between a rock and a hard place. Moody’s again:

Failure to reach an agreement between Samruk-Kazyna and creditors will likely lead to BTA’s liquidation with creditors unlikely to receive any repayments.

Some creditors are banding together in informal groups to try to figure out what to do. “We are considering all options, including legal action to recover our assets,” says one.

BTA appears to be in a relatively strong position or at least putting a bold face on things. One creditor was incensed that representatives of the bank turned up at a meeting in London to discuss the restructuring last week with smiles on their faces. “They just don’t care,” he said.

The fact is that Kazakhstan has a lot to be cheerful about. After a slump during the global financial crisis, the economy is growing by about 7 per cent a year on the back of high oil prices and rising consumer spending. Standard & Poors upgraded Kazakhstan’s sovereign rating to BB+ from BBB late last year on the prospects of higher oil exports.

International financial institutions are also enthusiastic. The World Bank and the IFC raised Kazakhstan’s rating to 47 out of 183 countries listed in the Doing Business survey for 2012 from 73rd place two years ago. They noted that Kazakhstan’s banking assets had improved since Samruk-Kazyna took control of four major banks during the financial crisis, including BTA.

All this rubs salt on creditors wounds. Many have given up puzzling out why BTA is failing while other Kazakh banks bailed out by Samruk-Kazyna in 2009 are now more or less going concerns.

Sceptics believe that BTA may have a dual function, serving both as a bank and as a useful vehicle for Kazakhstan’s clannish patronage network .

Others say that Kazakhstan is keeping BTA alive for political rather than commercial reasons. BTA is suing Mukhtar Ablyazov, its former chairman, in London’s High Court for allegedly embezzling billions of dollars from the bank. Ablyazov, who fled to London when Samruk-Kazyna took over his bank, has become a thorn in Kazakhstan’s side, openly criticising the government of corrupt practices and human rights abuses. It would be convenient for Kazakhstan if his reputation was wrecked, even better if he landed in jail.

Even if BTA pushes through another restructuring, it is difficult to see the bank having a viable future after treating creditors in such cavalier fashion.

“Even if they have a restructuring, no one will ever lend money to BTA again on a private basis,” says James Croft, head of emerging markets trading at Mitsubishi Securities. “I don’t see where BTA fits in the future of the Kazakh banking system.”

Related reading:
BTA on the verge of formal debt default, FT
BTA creditors gear up for restructuring battle, FT
Kazakh banks: little time for BTA, beyondbrics