Press Releases

IFC Arranges $29 Million Convertible Preference Share Issue in Kazakhstan

Afshin Molavi        Phone: (202) 458-5674        Fax: (202) 974-4384

London, November 6, 2001—IFC has helped Bank TuranAlem (BTA), one of the leading private sector commercial banks of Kazakhstan, to raise US$29 million by a structured equity issue.  This is the first international equity offering from Kazakhstan and the entire Central Asia region since the Russian financial crisis of 1998 and the first ever structured tier II capital issue from the region.

The new issue will boost BTA’s capital adequacy, diversify its investor base and give it access to the international capital markets.  The issue consists of Convertible Preference Shares (CPS) which have been confirmed by Ernst and Young as equity capital in accordance with International Accounting Standards as well as the BIS rules.  This first structured tier-II equity from the Central Asia region provides a blueprint for future issues by local banks and financial institutions.  The issue has been classified as primary capital by National Bank of Kazakhstan (Kazakhstan’s central bank) due to the equity features of the instrument.

The structure of the CPS, which was developed by IFC, has served to bridge the gap between the expectations of international institutional investors and the risk profile of an emerging markets issuer.  It incorporates several features that mitigate risks associated with frontier markets and the ability to realize upside potential.  Such features contain protection against currency risks by US dollar-linked indexation and several exit options that are typically seen in private equity transactions.  The presence of an investor with a long-term strategic interest in BTA could also have favorable valuation and liquidity impacts.  The CPS will be also listed on the stock exchange within 3 years.

In addition to strengthening its financial management, BTA is taking measures to significantly improve corporate governance and minority right protections consistent with best practices.  It has opened its Board of Directors to include representatives of its new foreign shareholders as non-executive directors, who will have an important voice in critical Board decisions.

“The corporate governance measures being taken by BTA will help to raise the standards of transparency, corporate reporting and performance in the Kazakh banking sector to a level consistent with international practices,” said Mr. Yerzhan Tatishev, Chairman of BTA.

Due to the success of the issue, BTA increased the size of the CPS issue from $20 million to $29 million, representing approximately 25 per cent of the Bank’s increased capital.  The issue has been subscribed by Raiffeisen Zentralbank Oesterreich AG (RZB) taking approx. 40% of the offering, International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Deutsche Investitions-und Entwicklungsgesellschaft mbH (DEG), and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO).

RZB is the head institution of the Austrian Raiffeisen Banking Group, the second largest banking group in Austria.  RZB has a long term strategy for CEE, where it runs 13 banks with a comprehensive regional network of more than 400 banking outlets and over 300 further business locations of its specialized subsidiaries.

BTA was established in January 1997 by merger of two state-owned banks.  It was recapitalized and fully privatized in March 1998.  BTA is the second largest bank in Kazakhstan and specializes in both corporate and retail banking.  The bank has assets of approximately $845 million and equity, $67 million and accounts for 18.3% of market share in Kazakhstan’s banking assets as at August 31, 2001.

“The issue is a very positive signal of investor confidence at a difficult time for emerging markets and the Central Asia region, in particular.  This equity issue will help BTA expand its business and provide a full complement of financial services to the local corporate and retail sectors,” said Khosrow Zamani, Director of IFC’s Southern Europe and Central Asia Department.

RZB’s Deputy Chairman, Herbert Stepic noted, “This transaction fits our business strategy to support our clients with local expertise throughout the entire region of Central and Eastern Europe (CEE) and CIS.  We value the collaboration with BTA and the international institutions who are joining us in this transaction.”

IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.  IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.

This press release does not constitute an offer of securities.  Any future offering of securities will not be registered with the US Securities and Exchange Commission or any state regulatory authority and the securities may not be offered or sold within the US or to, or for the account of, US persons, absent such registration or an available exemption.