Subordinated Debt Obligations Included in Tier 1 Capital - International Law Office

In November 2005 the National Bank of Kazakhstan approved amendments to the regulations governing the activities of second-tier banks as major financial intermediaries in Kazakhstan. Among other measures, the amended regulations introduce the concept of termless (hybrid) subordinated debt obligations - issued either directly or through a special purpose vehicle (SPV) - which may be included in Tier 1 capital. This new provision is intended to address the shortage of capital for banks in the present market, a consequence of the explosive growth in bank assets brought about by high oil prices and the overall expansion of Kazakhstan's economy.

Simultaneously with the approval of the amended regulations, one of the leading Kazakhstan banks proceeded with a hybrid Tier 1 capital issue, the first by any bank in the former Soviet Union. The issue used a loan participation note structure, with the perpetual 144A/Regulation S notes issued through an SPV. The issue is the first of a number of offerings as banks in Kazakhstan seek to increase their capital to support strong loan growth.

For further information on this topic please contact Yuriy Maltsev or Maxim Grekov at White & Case by telephone (+7 3272 50 74 91) or by fax (+7 3272 50 74 93) or by email (ymaltsev@whitecase.com or mgrekov@whitecase.com).