In April 2013, Kazakhstan’s parliament passed a bill creating a single pension fund (ENPF), with the objective of nationalizing the pension funds that were previously held at banks and other financial institutions. At the time, the objective was to safeguard pension assets, given the troubled period that banks in Kazakhstan had just experienced after the global financial crisis of 2007.

The merger of the private pension funds proved to be a challenging feat, as the most prominent banks either held off negotiations until the last possible moment, in the case of Kazkommertsbank, or refused to sell for anything other than cash, as was the case with Halyk Bank. In the end, however, the overhaul was complete and the assets were put under the Central Bank’s administration.

As an asset manager, however, the ENPF has not performed too well. The case of an investment in an ailing Azerbaijani bank has become a cautionary parable for the ENPF’s poor management in recent weeks.

Two years ago, the ENPF invested around $250 million in a 10-year bond issued by the International Bank of Azerbaijan (IBA), the largest bank in the Caucasian country, 76.7 percent-owned by the Ministry of Finance. Over the past few weeks, however, IBA has shown huge cracks: it announced that it had halted payments of foreign debts in early May and said it will go ahead with a restructuring plan, a “soft” default.

The problem for Kazakhstan’s ENPF is that it will have to either swap the notes for longer term ones, or renegotiate a payout at a lower price, said to be a 20 percent write-down. A source familiar with the negotiations told Reuters this week that there will be no special treatment for Kazakhstan compared to the other creditors of IBA. The ENPF could now potentially join a creditor group and negotiate as a bloc, but analysts said that the conundrum is unlikely to be resolved soon or favorably.

Full Content: The Diplomat

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