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Pioneering spirit creates string of firsts

  • 11 Sep 2006
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Kazkommertsbank is a trailblazer in the capital markets. Since its initial foray into the international capital markets, KKB has become its country's most prolific borrower and has pioneered an array of firsts, writes Joanne O'Connor.

Kazkommertsbank has been at the forefront of the development of Kazakhstan's international capital markets. It has consistently pioneered bigger, bolder and more innovative ways of borrowing. A few of its recent issues make the point.

Last October, for example, KKB became the first Kazakh bank to issue hybrid tier one capital when it sold a $100m 144A perpetual as part of a dual tranche financing. The Baa3/B/B+ rated security was priced to yield 9.2%, or 462.7bp over US Treasuries. At the same time, it issued a $500m 10 year senior bond. Since then, a flurry of banks have followed KKB's lead including its chief rival Bank TuranAlem.

In December, KKB brought Kazakhstan's first securitised bond, a $300m diversified payment rights asset based securitisation. WestLB and JP Morgan were bookrunners on the deal, partially wrapped by Ambac and priced at 29bp over Libor.

Five months later, the bank shrugged off the volatility in emerging markets and priced its second securitisation of diversified payment rights comfortably inside its previous issue.

The two tranche seven year deal was arranged by WestLB and offered 24bp over Libor on notes wrapped by Ambac and FGIC. Most investors had already participated in Kazkommertsbank's first securitisation but the bank managed to lure new accounts into its second issue. The proceeds were used to redeem the 2005 'C' notes from KKB's debut securitisation.

True to form, KKB kicked off 2006 by signing a $1.3bn term loan, the largest ever syndicated facility for a Kazakh financial institution through mandated lead arrangers Bank of Tokyo-Mitsubishi, Calyon, Commerzbank and Deutsche Bank, each of which committed $100m.

The deal is indicative of KKB's bold approach, comprising an $816.7m 364 day tranche that pays a margin of 45bp over Libor, and a $483.3m three year tranche that pays a margin of 90bp over.

Leading the way

KKB's pioneering spirit was rewarded in March when its debut euro issue — the first for a Kazakh borrower — was lapped up by enthusiastic investors. In a week when US Treasury volatility forced the Development Bank of Kazakhstan to scale back its issuance plans and halve the size of its 20 year bond to just $150m, KKB increased the size of its own issue.

Bookrunners ABN Amro put out initial guidance of 160bp-170bp over mid-swaps for a Eu200m deal. But with orders flooding into the book, guidance was revised to 163bp-165bp and the deal size increased to Eu300m on the back of a Eu425m book.

Amid concerns about Kazakh banks' ability to service their enormous appetite for international debt, Kazakhstan's central bank this year imposed a requirement that banks must set aside as capital 8% of all funds they raise internationally. It is a move that KKB thinks too sweeping. "Our argument is that our debts are our own responsibility," says Orynbasar Kuatov, head of debt capital markets at Kazkommertsbank.

In July, KKB issued in dollars for the first time in 2006 when it sold $200m in lower tier two capital through Dresdner Kleinwort. The company conducted a non-deal specific roadshow a month earlier but did not engage investors in discussions about a lower tier two issue for weeks after the roadshow finished.

Heavy traffic

The $150m 10 year non-call five transaction was planned for June, but ran up against heavy traffic including a transaction from Russia's MDM Bank. Bankers on the KKB deal denied that it was delayed to avoid comparisons with MDM. However, they admitted: "MDM at 9.97% doesn't help when you're trying to do something with an eight in it. KKB and MDM are two different credits with different ratings, but still, it doesn't help."

However, many investors were concerned about the timing of the deal and also the glut of supply from Kazakhstan's private sector banks this year. The deal was priced at 8.625% for the first five years and then at 150bp over five year Treasuries after the call. The pricing showed that even Kazakhstan's most prolific borrower is not immune from having to pay a new issue premium to investors in a difficult market.

However, KKB put paid to criticism of the timing of the deal the week after pricing when it sold a $50m increase, ensuring a more liquid $200m lower tier two transaction. The bonds were sold in just 15 minutes after reverse inquiry from investors that had already bought the 8.625% deal.

Kuatov admits that supply from Kazakh banks has, to some extent, made borrowing more challenging for KKB. And whereas Kazakhstan's most profitable bank, Halyk Bank, has adopted a more cautious approach to international borrowing (see profile on page 46), KKB has taken the opposite route.

As a fast-growing bank, KKB arguably lacks the safe haven image of Halyk, but as a frequent borrower and a solid credit, is unable to offer the eye-catching yields of banks further down the credit spectrum.

"Local borrowing is very expensive," says Kuatov. "It still makes sense to borrow internationally, even with the restrictions imposed by the central bank."

Nonetheless, the diversity of KKB's borrowing demonstrates its agility in the market. "We are strategic about our funding. If we see the market is demanding big premiums, we have no question about rethinking what we should do," says Kuatov.

  • 11 Sep 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 27 Oct 2014
1 JPMorgan 278,914.39 1111 7.98%
2 Barclays 251,894.67 869 7.21%
3 Citi 250,194.86 968 7.16%
4 Deutsche Bank 244,474.93 992 7.00%
5 Bank of America Merrill Lynch 240,849.72 857 6.89%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 28 Oct 2014
1 Deutsche Bank 48,610.51 125 7.60%
2 BNP Paribas 45,308.93 185 7.08%
3 Citi 34,756.99 97 5.43%
4 Credit Agricole CIB 31,024.72 128 4.85%
5 JPMorgan 30,825.29 75 4.82%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 28 Oct 2014
1 JPMorgan 23,809.73 114 9.33%
2 Goldman Sachs 22,933.11 77 8.98%
3 Deutsche Bank 20,595.54 76 8.07%
4 UBS 19,729.52 81 7.73%
5 Bank of America Merrill Lynch 19,079.80 69 7.47%