Auction sets Alliance debt value at 16.75 cents on the dollar

business and economy

Auction sets Alliance debt value at 16.75 cents on the dollar

By SRI ⋅ June 19, 2009 ⋅

(SRI) - An auction to settle credit-default swaps (CDS) linked to debt of Alliance Bank set the final recovery of the bank’s foreign bonds at 16.75 cents on the dollar, according to the auction administrators Markit Group Ltd. and Creditex Group Inc.

As a result, the sellers of the swaps will be required to pay 83.25 cents on the dollar to settle the contracts.

Alliance Bank triggered payouts on the CDS contracts when it stopped making principal payments on its bonds in May 2009. Two other Kazakh banks, BTA Bank, Kazakhstan’s largest bank, and Astana Finance, a large non-bank lender, have also defaulted on their debts.

Last week, a similar auction to settle the CDS for BTA Bank’s debt resulted in final values of the contracts of 10.25 percent of their notional values. It was the first such auction in emerging-markets CDS contracts.

“The Kazakh banking sector is distressed and there are legal and political uncertainties which need to be discounted in the recovery,” Bloomberg quoted Tim Brunne, a credit strategist at UniCredit SpA. “My estimate is that this affects a net risk exposure of a few hundred million dollars of contracts.”

Alliance Bank had announced plans to restructure its medium- and long-term debt in April, after it discovered that $1.1 billion in U.S. Treasuries had been pledged by the bank without properly reflecting that on its balance sheet. Later, the bank had admitted that the deal will likely result in a writedown of the entire $1.1-billion guarantee.