"The downgrade reflects our understanding that the bank, as announced on 23 November 2009, intends to restructure its debt obligations, in what we would consider a distressed exchange offer," said Standard & Poor’s credit analyst Mikhail Nikitin.

The downgrade follows the bank’s having missed interest payments on its senior notes pursuant to Temir Capital B.V.’s US$1.2 billion global medium-term note program and to US$300 million senior notes. We understand that the bank also defaulted on the two related-party deposits due to its major shareholder BTA Bank J.S.C. (D/D) on 6 and 9 November 2009.

The plan will restructure the bank’s international bond guarantees and domestic bonds, certain trade finance-related transactions, and certain related-party obligations of JSC Temirbank. All retail and commercial deposits (with the exception of certain related-party deposits) and the bank’s other operating liabilities will be excluded from restructuring. The bank has stated that National Welfare Fund Samruk-Kazyna will provide it with equity funding and become its majority shareholder upon successful completion of the restructuring.

According to our rating definitions, we assign a ’D’ (default) rating when we believe that any default would be a general default rather than a selective default on a specific issue or class of obligations. We understand that the bank plans to propose a detailed restructuring plan and discuss the restructuring options with creditors.

"It is currently unclear whether the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations would put the bank into bankruptcy if it is not satisfied with the restructuring process," said Mr. Nikitin.

“We believe that Samruk Kazyna’s acquisition of a majority stake in Temirbank is also uncertain under these circumstances”, the company said.