China Development Bank provided a $300 million loan to KazakhTelecom to form a joint venture

Project narrative

In 2009, China Development Bank provided a $300 million loan to Kazakhmys (a sister company of Kazakhtelecom JSC, which is also known as “Kaztel”) under an agreement with its controlling shareholder, JSC Sovereign Wealth Fund Samruk-Kazyna. On November 14, 2009, Kazakhtelecom (or “Kaztel”) issued a $300 million guarantee to China Development Bank for its loan to Kazakkmys under an agreement with its controlling shareholder, JSC Sovereign Wealth Fund Samruk-Kazyna. This guarantee would be triggered if JSC Sovereign Wealth Fund Samruk-Kazyna defaulted on its payments to China Development Bank. JSC Sovereign Wealth Fund Samruk-Kazyna issued a cross-guarantee to Kaztel promising to pay it back any amounts that Kaztel would have to pay to China Development Bank. This cross-guarantee is from the same entity that benefits from Kaztel's guarantee and, according to Fitch Ratings, would be of limited value if Kaztel's guarantee was triggered. This sizeable guarantee exposed Kaztel to the credit risks of its sister company (Kazakkmys). If triggered, the guarantee would result in liquidity pressure and a substantial debt and leverage increase. Fitch Ratings put out a press released a public statement on January 10, 2012, noting the poor disclosure of this liability and highlighting the inherent corporate governance and information transparency risks in Kaztel's credit profile (since the arrangements and the guarantee were disclosed in Kazakhmys's reporting but not in Kaztel's accounts).