How Much Did Baiterek Lose and Earn over Bereke Bank?

After President Toqayev visited Qatar, news about joint investment projects surfaced. The long-awaited sale of several large assets, i.e. the mobile operator Altel and Bereke Bank, in state possession also made headlines. Orda's Financial Analytics Department has looked into the situation surrounding the purchase and sale of Bereke Bank, the former Kazakh subsidiary of Sberbank.

Dark Horse

On February 15, an announcement appeared on the website of the Qatar Stock Exchange that the local Lesha Bank had agreed to purchase a certain bank from NMH Bayterek. The deal has not been completed yet, the final details have yet to be settled. It immediately became clear which bank this was - Bereke Bank. There is no doubt that the deal will be finalized.

Lesha Bank is an investment fund that. In addition to personal banking services for wealthy individuals, i.e. private banking, it specializes in investments in securities, companies, and real estate. This is the first independent commercial bank in Qatar operating according to the principles of Sharia.

Lesha Bank's assets at the beginning of 2024 amounted to 6.3 billion Qatari rials, whereas its equity at the beginning of the year exceeded 1.2 billion Qatari rials. Net profit for 2023 amounted to 94.5 million Qatari rials.

Bereke Bank is much larger than its potential buyers. The bank's assets at the beginning of 2024 exceeded two trillion tenge, almost three times more than Lesha Bank's. Meanwhile, equity capital was at the level of 159.9 billion tenge, and profit by the end of 2023 was equal to 26.2 billion tenge, more than twice the profit of the Qatari bank. This is still unaudited data and Bereke Bank's profit portfolio may be slightly worse or better. 

How will Lesha Bank be able to take on Bereke Bank? It may receive debt financing from the Qatar Investment Authority, the Qatar National Welfare Fund. Or perhaps it will receive it through some other special conditions?

At one time, Baiterek came into possession of Bereke Bank through a complexly structured transaction with many conditions. Negotiations were long and difficult. 

0, But Not for Free

Baiterek did not spend a single tenge from its finances on purchasing the former Kazakh Sberbank subsidiary. Nevertheless, the deal was not free, according to its terms, the Russian Sberbank, as a former shareholder, received 130 billion tenge as dividends. This was known in advance, however. 

During the negotiations, the Russian Sberbank issued its Kazakh subsidiary a 146.4-billion-ruble stabilization loan due to the massive outflow of customers and funds. In the middle of 2022, the ruble began to appreciate against both the dollar and the tenge. The cost of one ruble exceeded eight tenge. By the end of 2022, Bereke Bank's loss from the currency revaluation of loans amounted to KZT 365.9 billion, the bank ended the year with a total loss of almost KZT 125 billion. 

In such a scenario, Sberbank had to pay Baiterek extra but managed to give it away for free.

Reanimation

The bank's new management had to make quick moves, including a hasty rebranding from Sberbank to Bereke Bank. This was one of the main conditions for the subsequent lifting of sanctions levied against the former Kazakh subsidiary due to its ties with Russia's Sberbank.

The bank did not meet the capital requirements. It lacked liquidity. Without it, the bank could not adequately lend and accept deposits. A new parent company, i.e. Baiterek, came to the rescue along with numerous subsidiaries. 

At the beginning of 2023, a 199.5-billion-tenge deposit from "Baiterek" was placed in Bereke Bank, while subsidiaries contributed another 539.2 billion tenge. There is no more up-to-date data, the financial statements for the year 2023 have not been published.

On September 13, 2023, Bereke Bank issued five bond prospectuses at once: four valued at 100 billion tenge each with a maturity of 212,303,390 and 482 days along with a floating coupon rate. The average value of the base rate, minus a margin of 0.5%, currently stands at 14.75%. Not to say that the market conditions are strong, but they are not preferential either. They probably sold securities to quasi-public sector companies, the total placement amount is 400 billion tenge.

The fifth bond issuance raises eyebrows. The announced amount added up to 40 billion tenge, but only 3.2 billion tenge worth of securities were sold. At the same time, the return rate was 0.01%. It's not free but with an "additional payment". The placement amount is not large enough to talk about state aid. The rest of the bonds will likely be sold after the final sale of the bank to the new investor for "settling in". At the same time, FitchRatings has put the bank on "Rating Watch Negative", noting the potential uncertainty around future support from the state and or its potential owner.

Show Me The Money

With a probability leaning towards 100%, the Qatari bank will buy Bereke Bank from Baiterek. But on what terms? Will the Qataris pay real cash? If so, how much? On paper, Baiterek earned a little more than 30 billion tenge from purchasing the former Sberbank subsidiary owing to the revaluation of the asset value. If they sell for less than this value, then it will have to be shown in the financial statements as a loss.

If they sell it for cash up front, will Baiterek and its numerous subsidiaries continue to keep deposits in Bereke Bank, and on what terms? Only time will tell.

Original Author: Vasily Masalsky

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original piece in Russian for accuracy. The original article was posted on 16/02/24, it has been updated to reflect the current situation as of 28/02/24.