Finance In Brief


/IRBIS, Apr 11/

In the evening, on April 10, Moscow bureau of REUTERS informed, that vice minister of finance of Kazakhstan Anvar Saidenov said at the first of the series of presentations of the new Kazakhstani loan on international market of private capitals that the government was intended to exchange the main portion of five-year internal debt, issued as AVMEKAM bonds, for new seven-year euronotes of Kazakhstan.

REUTERS does not inform of the place where the statement was made. However, earlier Anvar Saidenov was saying the presentation would start on April 10 in London and further it will continue in Frankfurt, Geneva, Boston and New York.

New (fourth) euroloan of the country is to be issued in a few weeks as euronotes with the assistance of Deutsche Bank and J.P. Morgan for $400 mln.

AVMEKAM (NIN KZ55L0804A42), or special currency state bonds of Kazakhstan � domestic SS. These bonds were issued on April 9, 1999 for $244,097.5 th. with $100 par value and 6.14% APR coupon rate in terms of dollars to be paid semiannually. All settlements on AVMEKAM are made in national currency of Kazakhstan at official exchange rate of tenge to dollar, effective on the settlement date (coupon payment date and maturity date). Circulation term of the securities � 5 years.

AVMEKAM were issued by the government to protect the assets of accumulative pension funds (APF) from devaluation due to the introduction of "free floating" exchange rate of tenge to U.S. dollar on April 4, 1999 instead of "market regulated" one. AVMEKAM were issued by exchanging state treasury bills (MEKAM), denominated in tenge, purchased by accumulative pension funds for pension assets and that were in their portfolios as of April 3, 1999. The exchange took place by purchasing MEKAM ahead of schedule by the Ministry of finance and by using the proceeds in tenge to pay for AVMEKAM at current value of converted SS. This value was coordinated with the National securities commission of Kazakhstan, and AVMEKAM were paid in tenge at KZT88.3 per U.S. dollar exchange rate.

This restructuring of internal debt, on the one hand, has protected the assets of APF from devaluation of tenge, and on the other hand � has allowed the Ministry of finance to postpone (or extend) the servicing of 68% of supershort internal debt (mostly 6-12 months) for 5 years.

Based on the statement of Anvar Saidenov, new restructuring is planned now. In the opinion of the vice minister of finance, pension funds of Kazakhstan will voluntarily give $200 mln worth of AVMEKAM in exchange for new euronotes. As a result, foreign investors will be able to buy the euronotes only for remaining 200 mln.

Mr. Saidenov also said that International monetary fund and the World bank have approved the exchange, whose final terms to be determined after the issue of euronotes.

AVMEKAM � are low liquid bonds on domestic market of Kazakhstan, because of their low coupon rate. Most of them are in the portfolio of an only state accumulative pension fund (SAPF), which accumulates 50% of all net pension assets of APF in the country.

Recently, thanks to SAPF, which works as a market-maker of AVMEKAM at Kazakhstan stock exchange (KASE), prices of these bonds fell down to 84% of face value (net price without accumulated interest) on the secondary market, which corresponds to 11.5% APR full yield to maturity in terms of dollars. However, private pension funds prefer euronotes of Kazakhstan to these bonds, since on domestic secondary market current return of the former is 10.20 and 11.06% APR for the bonds of the second and the third issues, respectively (data is presented for the Exchange market). Taking into account existing conjuncture, the hopes of the government to exchange AVMEKAM seem to be absolutely justified, since it is SAPF that will actually exchange these securities that are in its portfolio earning 6.14% APR. Attitudes (opinions) of private funds in this case will not have a significant importance.

At the same time, when new euronotes are offered the exchange will make it possible to create a large additional and not quite "market" demand, which, without any doubt, will have a favorable impact on the yield of new issue bonds.

However, this is not the only thing in the restructuring that interests the Ministry of finance. First of all, it will get additional deferment of the payment of $200 mln internal debt for another three years (one year of circulation of AVMEKAM has already passed). And what is not less important, is that the yield of this part of the debt, calculated in terms of tenge, is significantly reduced, since AVMEKAM were calculated at KZT88.30 per dollar when they were placed, and now it is KZT142.25, and no significant fluctuations of the devaluation is not expected in near term. Anyway, for the most part, this aspect will be determined based on the details of the exchange, exchange methods and calculation of current exchange value of AVMEKAM, which is a difficult task itself.

When assessing the actions of the Ministry of finance it should be taken into account, that servicing of internal and external debt draws funds from various articles of the budget with all the consequences.

Another aspect of the problem, which is the assessment of the possibility of checking by the retirees the accuracy of charging investment income on their pension accumulations after such complex evolutions, calculations, worth the attention. It is not an easy task even for a professional participant of the stock market with a clear mind.

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