8 July 2009

This is bne's Central Asian and Caucasus daily newsletter, a list of the top stories in region for the day. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here: http://businessneweurope.eu/users/subs.php

Eurasia TOP STORY 1. : Initec wins €450m power plant modernisation contract 2. AFN undertakes stress test and calculates potential provisioning levels for Kazakh banks 3. : Financial police not investigating Alliance’s Yertayev Eurasia Kazakhstan 4. Former BTA executive arrested in 5. Homebuyers protest construction delays in 6. JBIC and VEB to finance Aktobe metallurgic plant 7. Kazkommertsbank repays JPY25bn (US$264m) Eurobond on schedule 8. KazMunaiGas EP maintains its BB+ S&P rating On the website today 9. BRICKS & MORTAR: Kazakh banks hope for more funds from mortgage programme 10. Survey finds economic outlook for emerging Europe improves 11. The crisis for Central Europe's pension funds Eurasia Other Central Asia 12. : Bakiyev signs off new Manas deal Eurasia Caucasus 13. Azerbaijan and European Union reach aviation deal 14. International currency reserves of Georgia decrease to USD 1 504 539 000 in June 15. Large salt plant to be opened in Azerbaijan this year 16. VTB Bank extends subordinate loan payment to VTB Bank Georgia by 5 years

--************************************************************ Eurasia TOP STORY --************************************************************ 1. Uzbekistan: Initec wins €450m power plant modernisation contract bne July 8, 2009

Spanish energy company Initec has been appointed by Uzbekenergo to modernise the Navoi thermoelectric power station, UzDaily reports. The €460m project will include the construction of a combined-cycle plant at the Navoi power station, with capacity of 477 megawatts. Uzbekenergo and the Reconstruction and Development of Uzbekistan are financing the project, which is due to start in the fourth quarter of this year.

--************************************************************ 2. AFN undertakes stress test and calculates potential provisioning levels for Kazakh banks Visor Capital July 8, 2009

The stress test made by the AFN shows the maximum potential provisioning levels that Kazakh banks may reach without breaking minimum regulatory capital requirements. We do not expect any significant impact for the banks covered by the stress test.

The Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations (AFN) yesterday published a press release highlighting the results of its most recent stress test for Kazakh banks. The AFN calculated the maximum potential provisioning level for each bank under its stress test a by lowering their retained earnings, up to that level where a bank is able to maintain regulatory K1 and K2 capital adequacy ratios. The AFN also assumed in its stress test that there would be no additional capital injections going forward.

The table below sets out maximum provisioning levels for the banks that we have under our coverage universe. The AFN did not include BTA Bank (BTAS KZ), Alliance Bank (ASBN KZ)(ASBNp1 KZ)(ALLB LI) and Temirbank (TEBN KZ)(TEBNp KZ) because these banks were in breach of regulatory minimum capital adequacy requirements as of 1 June 2009.

The stress test showed that Kazkommertsbank (KKGB KZ)(KKGBp KZ)(KKB LI) could further increase provisions by 4.4% up to 25.9% from its level of 21.5% as reported in regulatory statistics for May. Halyk Bank (HSBK KZ)(HSBKp KZ)(HSBKp1 KZ) (HSBK LI) and Bank CenterCredit (CCBN KZ) has the highest potential for further provisioning among the above-indicated five banks, based on the AFN stress test. ATF Bank (ATFB KZ) and Kaspi Bank (CSBN KZ)(CSBNp KZ) may increase provisions to 18.1% and 14.8% from the current level of 12.7% and 9.8%, respectively, without breaking minimum regulatory capital requirements.

We do not expect any significant impact for the banks covered by this stress test. We have all the above-mentioned banks under formal research coverage, available to our clients.

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--************************************************************ 3. Kazakhstan: Financial police not investigating Alliance’s Yertayev SRI July 8, 2009

Kazakhstan’s Agency for the Fight against Economic Crime and Corruption (financial police) denied to have initiated criminal proceedings against former CEO of Alliance Bank, Zhomart Yertayev.

Yertayev was suspended from his new job as CEO of Eurasian Bank by the Financial Supervision Agency (FSA) on Friday, reportedly because of violations of Kazakhstan’s banking legislature which had occurred during his tenure at Alliance.

Yertayev is expected to give his take on the situation at a press conference on Wednesday.

businessneweurope.eu Eurasia Kazakhstan --************************************************************ 4. Former BTA executive arrested in Moscow SRI July 8, 2009

Former head of corporate banking at BTA Bank, Veronika Yefimova, has been arrested in Moscow.

Kazakhstan had issues an international warrant on Yefimova who was wanted in Kazakhstan for allegedly embezzling $1.34 million in 2006-08. Yefimova is reportedly expected to be extradited to Kazakhstan shortly.

--************************************************************ 5. Homebuyers protest construction delays in Almaty SRI July 8, 2009

A group of home buyers who had bought pre-constructed apartments held a press conference in Almaty protesting the delays in construction of the Zhaily residential complex constructed by the Sert real estate developer.

According to the home buyers, the company invested money paid for apartments into unrelated projects. Meanwhile, the construction is delayed by more than three years. There are reportedly more than 1000 families who were promised and paid for apartments in Zhaily.

--************************************************************ 6. JBIC and VEB to finance Aktobe metallurgic plant SRI July 8, 2009

Japan Bank for International Cooperation (JBIC) and Russian Vneshekonombank (VEB) will finance a new metallurgic plant in Aktobe, according to the plant operator SBS Steel.

According to Kabul Shadiev, the chairman of SBS Group, the parent company of SBS Steel, JBIC and VEB will finance 80 percent of the $480-million project. The construction is expected to start in August and should last three years. The plant will have annual production capacity of 500,000 of granulated iron. According to reports from 2007, BTA Bank was originally expected to finance the project.

Shadiev announced that the company has already identified potential customers for the production. Hares Engineering expressed interest to buy the entire production, and the SBS group has also been in negotiations with other domestic steel producers.

businessneweurope.eu --************************************************************ 7. Kazkommertsbank repays JPY25bn (US$264m) Eurobond on schedule Visor Capital July 8, 2009

We expect slight positive impact for the bonds or shares of the Bank.

Yesterday, Kazkommertsbank (KKGB KZ)(KKGBp KZ)(KKB LI) announced that on 6 July 2009 the Bank successfully repaid JPY25bn (US$264m) Eurobond. The Bank noted that it has repaid the floating-rate bond on schedule from its own funds. The Eurobond was issued under an MTN Programme in July 2007 through the Bank’s subsidiary, Kazkommerts International B.V.

We expect slight positive impact for the bonds or shares of the Bank. We currently have Kazkommertsbank under formal research coverage, available to our clients.

--************************************************************ 8. KazMunaiGas EP maintains its BB+ S&P rating Visor Capital July 8, 2009

The Company also moves to stable outlook from ratings watch negative. NC KazMunaiGas meanwhile loses its investment grade status as it is downgraded to BB + from BBB-. No significant share impact is expected.

Standard & Poor’s Ratings Services yesterday downgraded NC KazMunaiGas’s long- term corporate credit rating to BB+ from BBB-, while its subsidiary KazMunaiGas EP (RDGZ KZ) (KMG LI) maintained its rating at BB+. The downgrade reflects the Agency’s concerns of NC KMG’s liquidity position, and the group’s subsidiaries (including KazMunaiGas EP), being required to deposit the majority of their cash in local banks including Halyk Savings Bank, Kazkommertsbank and BTA Bank, where liquidity and asset quality was “under pressure” according to the S&P report. S&P confirmed that both NC KMG and KMG EP had a stable outlook (from ratings watch negative for KMG EP).

No share impact is expected. We currently have KazMunaiGas EP under formal research coverage available for our clients.

On the website today --************************************************************ 9. BRICKS & MORTAR: Kazakh banks hope for more funds from mortgage programme Clare Nuttall in Almaty July 8, 2009

The Kazakh government's mortgage refinancing programme has been eagerly accepted by banks and their clients, with several banks hoping for additional funds to satisfy additional demand. However, low consumer confidence is holding back the recovery of the retail lending and real estate markets.

A total of KZT120bn (about $800m at current rates) has been allocated to Kazakhstan's 12 most active mortgage lenders to refinance existing mortgages. The programme is specifically targeted at the middle and working classes. Only

businessneweurope.eu customers with only one property, not more than 120 square metres in size, can be refinanced under the programme. It is also limited to customers who are not overdue with their mortgage payments.

It is mainly these people who are struggling with their mortgage repayments at present. After property prices started to fall from mid-2007, many of the speculators who had bought several apartments on the assumption they would continue to increase in value, simply handed their keys over to their bank when it became apparent that their mortgage repayments would far exceed the new value of the property. However, individuals and families who had taken out a mortgage and made a downpayment did not have this option when they entered a negative equity situation.

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--************************************************************ 10. Survey finds economic outlook for emerging Europe improves bne July 7, 2009

A survey of financial experts released July 2 shows that optimism over the economic outlook for Central and Southeast Europe has continued to improve.

In its latest monthly survey of 66 financial market experts conducted between May 28 and June 15, the Centre for European Economic Research in Mannheim (ZEW) and Erste Bank found that the economic outlook for the region, as measured by their economic sentiment indicator, had improved by 14.4 points to 20.4 points. "For the first time since the beginning of the survey, positive expectations (40.8%) outweighed the neutral forecasts (38.8%)," the authors of the accompanying report noted.

Although the economic expectations for emerging Europe in general have improved, the survey found that forecasts for some of the individual countries have worsened in the current survey, even if they remain positive in most countries. Notwithstanding the 5.0-point decrease to 19.1 points in the survey, the Czech sentiment indicator kept its leading position in comparison to other countries. The outlook for Hungary was judged to be the worst of the bunch.

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--************************************************************ 11. The crisis for Central Europe's pension funds Nicholas Watson in Prague July 7, 2009

The global economic crisis affected pensions everywhere, but less so in Central Europe. However, there is still a danger that governments in the region could use the financial disaster as an excuse to backtrack on urgent reforms.

businessneweurope.eu According to recent data from the Organisation for Economic Co-operation and Development (OECD), private pension funds lost 23% of their value in 2008, or some $5.4 trillion. What started as a financial crisis with the collapse in stock markets, escalated into an economic crisis, bringing a second wave of trouble for pension funds from falling earnings and rising unemployment, thus reducing private pension fund contributions. For public pension funds, the accompanying rise in unemployment benefits and the massive fiscal stimulus packages is putting a strain on public finances; budget deficits in OECD countries are expected to reach nearly 9% of national income in 2010.

Looking at private pension funds in particular, the largest losses of 37.5% were recorded in Ireland. At the other end of the scale, losses were just over 10% in the Slovak Republic and lower still in the Czech Republic. Polish losses were somewhere in the middle, down by 17.7%.

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Eurasia Other Central Asia --************************************************************ 12. Kyrgyzstan: Bakiyev signs off new Manas deal bne July 8, 2009

Kyrgyzstan’s President Kurmanbek Bakiyev has signed into law ratifying the new agreement between Kyrgyzstan and the US on the Manas airbase. The deal will allow the US and coalition forces to continue using the base near .

Eurasia Caucasus --************************************************************ 13. Azerbaijan and European Union reach aviation deal APA-Economics July 8, 2009

Azerbaijan and European Union (EU) signed an agreement on cooperation in the field of aviation, which enables EU air companies to organize flights to Azerbaijan, APA- Economics reports. “The agreement creates opportunity for fair mutual access to the air line markets between EU and Azerbaijan. The discrimination will be lifted”, said Vice President of the EU Commission for Transport Antonio Tajani.

The document will lift the national restrictions in the bilateral air services between the EU countries and Azerbaijan.

Passenger transport between EU and Azerbaijan rose for three times and reached 210 thousand a year. Britain, Germany and Austria have the heaviest air traffic with Azerbaijan among the EU countries.

businessneweurope.eu --************************************************************ 14. International currency reserves of Georgia decrease to USD 1 504 539 000 in June GBC July 8, 2009

The international currency reserves of Georgia decreased by USD 25.3m in June 2009 and made up USD 1 504 539 000 as of July 1, 2009.

The international currency reserves of Georgia decreased by 21.2m GEL from USD 1 525 789 500 of July 1, 2008.

The international currency reserves hit the historic maximum of USD 1 908 203 600 as of May 1, 2008.

The international currency reserves will increase by at least USD 72m after Georgia will receive an IMF tranche of USD 72m in September 2009.

--************************************************************ 15. Large salt plant to be opened in Azerbaijan this year APA–Economics July 8, 2009

Azersun Holding will put a large slat plant into operation by the end of the year, the company officials told APA- Economics.

The plant is constructed in Masazir dist