BTA BANK Corporate bonds • Sector: Bank • Rating: Ba1/BB • 13.02.2009

Recommendation Negative news flow affects BTA Bank Company Description approx. 20% against USD, which added to the €6.25 11: HOLD turmoil. $7.875 10: HOLD BTA Bank (the former Bank Turanalem) was formed in 1997 as a merger between two Finally, the chairman of the second-largest bank $8 14: HOLD government-owned banks and is today the largest in has stated that it should be $8.5 15: HOLD bank in Kazakhstan. BTA Bank is a full-service considered meeting obligations towards local $VAR 09: HOLD bank with offices in Kazakhstan, Russia, , investors before paying foreign investors. This is a , , , , Tajikistan highly unfortunate comment in a very sensitive £7.125 09: HOLD market, and it has undoubtedly added to the and . The Kazakhstani government fund Publisher: Samruk-Kazyna owns a 78% stake in the bank, pressure on BTA Bank’s bonds. Jyske Markets while the remaining 22% of the shares is owned by Recommendation Vestergade 8 -16 several European investment companies and local The events over the past 14 days have adversely DK - 8600 Silkeborg investors. affected the market and our assessment of BTA Analyst: Bond Ratings Bank. The intervention by the state was larger Morten Hansen than expected and signals that the problems are +45 89 89 76 87 Moody’s/S&P: Ba1 (negative watch)/BB (watch larger than originally expected. On the other morten.hansen@jyskeba developing) hand, the state has shown that it is willing to nk.dk Issues keep its promise not to let Kazakhstani banks go bankrupt. The partial nationalisation implies, Translation: Offer Y-t-w Spread Bond ID however, that there is a risk that foreign banks Translation Services € 6.25% 2011 39 55.55 5412 B01656 will withdraw their loans granted to BTA Bank. $ 7.875% 2010 55 64.21 6327 B52979 Read more research Since much bad news is still unfounded rumours, $ 8.00% 2014 40 33.13 3283 B71054 reports about corporate we maintain our HOLD recommendation, but $ 8.50% 2015 41 30.56 2805 B74933 bonds at there is no denying that the past 14 days have www.jyskemarkets.com All bonds are issued by Turanalem Finance B.V. domiciled in Holland. The bonds are guaranteed by the adversely affected our view on BTA Bank. We point out that an principal company BTA Bank. Strengths/Opportunities investment in emerging- • Strong brand in the CIS region. market and corporate Recent Developments • Strong growth potential in the bonds is currently Over the past week the news flow in relation to neighbouring countries. associated with BTA Bank has been very negative and has resulted • Strong performance supported by low extraordinarily high in a negative pressure on BTA Bank’s issues. uncertainty. We operating costs. recommend investors to On 30 January the financial authorities in • The state as indirect principal shareholder. reduce their risk Kazakhstan submitted a report to the Weaknesses/Threats exposure, and management of BTA Bank with the main • High exposure to the Kazakhstani property consequently we have conclusion that BTA Bank was ordered to increase sector. double underweight on provisions by 100% (from 10% to 20% of its lending • Dependent on economic developments in high-yielding bonds. But portfolio), above all due to the authorities’ Kazakhstan and its neighbouring countries. for long-term risk assessment of increased losses on foreign • The dependence on international loans tolerant investors, there activities. BTA Bank could not comply with this may be good investment may increase the refinancing risk. It requirement since it would require the bank to opportunities in these increases the risk inherent in the current provide USD 2bn over the weekend. Consequently, turbulent times. The financial crisis. one of the government’s funds (Samruk-Kazyna) recommendations for individual bonds are had to take action and inject the money and thus Development in Price and Spread take over 78% of the bank. In order to complicate relative to the market in BTAS 6,25% 27-09-2011 general and therefore the the transaction further, rumours have it that 5613 85 recommendations apply several international banks will require that their 4613 75 3613 loans granted to BTA Bank are repaid ahead of 2613 65 provided that you have bp. Kurs 1613 55 decided to invest in high- schedule. 613 45 yielding bonds. -387 Subsequently the central bank allowed the -1387 35 18-01- 25-04- 01-08- 07-11- 13-02- 2008 2008 2008 2008 2009 Disclaimer: Kazakhstani currency, the tenge, to weaken by Kurs (hs) Spænd (vs) Please see the last page Price (rhs) Spread (lhs) BTA BANK

Corporate bonds • Sektor: Bank • Rating: Ba1/BB • 13.02.2009

Samruk-Kazyna acquires interest in BTA it is impossible to assess whether an agreement can be made. On 30 January the financial authorities in

Kazakhstan submitted a report to the If BTA Bank is sold to Sberbank, there is no management of BTA Bank with the main doubt that it will positively impact on BTA’s conclusion that BTA Bank was ordered to chances of making it through the current crisis. increase provisions by 100% (from 10% to 20% Sberbank has, however, not yet indicated of its lending portfolio), above all due to the whether it is interested in acquiring all BTA authorities’ assessment of increased losses on Bank or whether it is only interested in the foreign activities. Russian activities. Therefore, it remains

uncertain whether BTA Bank’s bonds will BTA Bank could not comply with this benefit from Sberbank’s A2 rating at Moody’s. requirement since it would require the bank to

provide USD 2bn over the weekend. Consequently, one of the government’s funds Devaluation of the Kazakhstani (Samruk-Kazyna) had to take action and inject currency the money and thus take over 78% of the bank. Shortly after BTA Bank had received the capital injection, the Kazakhstani central bank lowered With this capital injection, the management of the rate of the tenge against USD from 120 to the bank and Samruk-Kazyna find that BTA 150. The currency had been under pressure for Bank can make it through the current crisis and a while, and the central bank had spent 6% of that it will not have problems meeting its the currency reserves on keeping the rate at obligations. In our opinion, however, it remains approx.120. The local authorities blame the to be seen whether BTA Bank can manage if the weakening of the rouble for the pressure on the Kazakhstani or Russian economies deteriorate tenge, which is, however, not the whole truth. further, and therefore, it cannot be ruled out Given an oil price in the forties and an economy that BTA Bank may need further assistance which is slowing down severely, the fixed rate from the state. could not be maintained in the long term.

At the moment, there is a risk that Samruk- According to BTA Bank, the devaluation of the Kazyna’s takeover of BTA Bank may activate currency has no significant impact on the bank, nationalisation provisions in relation to the since the bank’s exchange-rate risk is hedged. bank’s debt. This means that foreign banks, Time will show whether this is correct, but which have granted loans to BTA Bank for an expectations are that it is. Therefore, the aggregate amount of USD 5.4bn, may at worst devaluation has no direct impact on BTA Bank’s require that the money is repaid. So far no ability to repay its obligations. banks have announced that they intend to take such action, but the mere possibility puts Will Kazakhstan push foreign investors pressure on BTA Bank and Samruk-Kazyna to the back of the queue? which hopes to avoid tying up further resources at BTA Bank. Today the chairman of the second-largest bank in Kazakhstan, Kazkommertzbank, was quoted Possible divestment to Sberbank for saying in the local press that it wants national interests to have priority in the event Samruk-Kazyna does not want to keep the stake that the bank cannot meet all its obligations. in BTA Bank, since it absorbs a large share of This is a highly unfortunate statement in this the fund’s resources. Therefore, negotiations critical situation, and we do not expect that this have been initiated with the large Russian bank is what the government wants. It does, Sberbank which has sent a team of negotiators however, cause uncertainty about all to Kazakhstan. After 14 days, no information international issues from Kazakhstani has been leaked as to how interested Sberbank companies, i.e. primarily the banks. actually is in acquiring the bank, and therefore

2 BTA BANK

Corporate bonds • Sektor: Bank • Rating: Ba1/BB • 13.02.2009

Negative impact on our HOLD recommendation for BTA Bank The events over the past 14 days have adversely affected the market and our assessment of BTA Bank. The intervention by the state was larger than expected and signals that the problems are larger than originally expected. On the other hand, the state has shown that it is willing to keep its promise not to let Kazakhstani banks go bankrupt. The partial nationalisation implies, however, that there is a risk that foreign banks will withdraw their loans granted to BTA Bank. Since much bad news is still unfounded rumours, we maintain our HOLD recommendation, but there is no denying that the past 14 days have adversely affected our view on BTA Bank.

3 BTA BANK

Corporate bonds • Sektor: Bank • Rating: Ba1/BB • 13.02.2009

Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied.

This is a recommendation and not an in-depth investment report.

Conflicts of interest Jyske Bank has prepared procedures to prevent conflicts of interest, although analysts may have different tasks. These procedures have been incorporated in the business procedures covering the corporate-bond research activities of Jyske Markets, a business unit of Jyske Bank.

Jyske Bank's corporate-bond analysts may not hold positions in the instruments for which they independently prepare research reports. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. The analysts receive no payment from persons interested in individual research reports.

Read more about Jyske bank's policy on conflicts of interest at www.jyskebank.dk/terms.

Jyske Bank’s corporate bond recommendations – current breakdown

Breakdown of recommendations, corporate bonds (number)

35

30

25

20

15

10

5

0 BUY HO LD S ELL

Source: Jyske Bank

Financial models Jyske Bank uses mainly Credit Edge from Moody’s.

Risk Investment in this corporate bond is associated with risk. Movements in the credit market, the sector and/or the news flows, etc. regarding the company may affect the price of the bond. See the front page of the research report for our view of the risk associated with the corporate bond. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all- encompassing. If the corporate bond is denominated in a currency other than the investor’s base currency, the investor accept s an FX risk.

Update of the research report The planned update of the report will be prepared immediately upon the release of the company’s financial statements.

See the front page for the initial date of publication of the report. All prices stated are the latest trading prices at the time of the release of the research report, unless otherwise stated.

Recommendation concepts Our recommendations are based on market developments and an assessment of the expected return. A positive recommendation (BUY) is based on expectations that investment in the corporate bond will generate a return above that of the general credit market. On the other hand, a negative recommendation (SELL) implies that we expect investment in the corporate bond to generate a return below that of the general credit market.

The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors.

4