FINANCIAL INSTITUTIONS' ASSOCIATION OF KAZAKHSTAN STANDS TO PROTECT INVESTORS RIGHTS DUE TO THE MINISTRY OF FINANCE'S INTENTION TO CALL MEAKAM

/IRBIS, December 19, 03/ - Today Financial Institutions Association of Kazakhstan (FIK) presented to Kazakhstan Stock Exchange (KASE) joint letter of financial market;s participants concerning advance repayment of the whole volume of special treasury bonds MEAKAM (KZ6AK3112A74, KASE's code MAM120.001; KZT1,000, KZT36,850.4 mn, January 5, 98 - December 31, 07; semi-annual coupon 9.75%APR) for KZT14.3 bn. In cover letter of FIK, addressed to the first vice prime minister of the Republic of Kazakhstan to Mr. Pavlov A.S., FIK asks to draw attention to the fatc that 52% of MEAKAM left in circulation is currently held by pension funds, which because of several objective reasons experiences losses now. Among those reasons FIC names: tenge strengthening from the beginning of the current year, lack of reliable financial instruments with adequate yield in tenge, general reduction of profitability of investment portfolios of pension funds. "In aggregate with the decision of the National bank of the Republic of Kazakhstan, which prescribes within 6 months to get rid off eurobonds, issued by banks- residents for total amount nearly $50 mn, the intention of the Ministry of Finance to call MEAKAM will be one more step towards worsening situation", - the letter states. Taking into account stated circumstances, FIC asked Mr Pavlov to consider the request from pension market participants and "provide a help in resolving this issue to avoid distrust from the side of Kazakhstan population to government securities and accumulative pension system". Joint letter of Kazakhstani financial market participants, signed by 14 leading financial institutions of the country and the President of FIC Council, has been sent to Dosayev Y.A., the Minister of finance of the Republic of Kazakhstan as well. In that letter, participants ask to draw attention to the following circumstances: 1. According to article #19-1 of the Rules of issue, circulation and repayment of special treasury bonds of the Republic of Kazakhstan (the Rules), the National bank should have notified Primary dealers about advance repayment of MEAKAM not on December 13, but on December 11 2003 (taking into account weekend and holidays in Kazakhstan). 2. Almost all MEAKAM to be called are held in portfolios of different non state investors, including accumulative pension funds and physical persons, who had purchased MEAKAM at secondary market at prices significantly higher than its face value. At present time profitability of GS of Kazakhstan stands at 5.5 - 6.2% APR. Consequently, calling of MEAKAM will lead to significant losses (down to 13% of face value of securities), which those investors will encounter, and in opinion pf market participants that what will encourage distrust to GS of Kazakhstan, and especially to its secondary market, as well as to accumulative pension system of the country. 3. It should be urgently determined who will carry responsibilities for losses, caused by defaults of repo sellers at Kazakhstan Stock Exchange (KASE) as a result of MEAKAM advance repayment (the volume of opened at exchange repo, where MEAKAM serves as backed security, after closure on December 23 equaled to KZT786.3mn). 4. Intensive activity of MEAKAM purchase-sale market and auto repo on these securities on December 10-13, 2003 allows professional participants to suspect that direct insider activities of separate market players on getting rid off MEAKAM took place, which was based on illegally obtained information (the volume of MEAKAM purchase sale for the period December 1-13, 2003 equaled to KZT26.0 bn, whereas average monthly volume of transactions on these securities for January -November was estimated at KZT3.4bn). "We also want to stress that article #19-1 of the Rules, which grants the Ministry of finance a right to repay MEAKAM in advance, was included in the Rules by the decree of the government of the Republic of Kazakhstan dated April 2, 2001 #437. In effect, this fact can be considered as unilateral change of issue terms by the issuer to the disadvantage of investors", - the letter states. Taking into considerations all cited above, professional market participants earnestly ask the letter recipients to cancel the decision about advance repayment of MEAKAM and as an alternative solution, they proposed an option of calling MEAKAM at current market yield. [2003-12-19]