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M.E.Favale: Kazakhstan invited me assist in overcoming a crisis 2017-06-16 10:01

-I am pleased to interview two women working in the banking sector. Would you please briefly introduce yourself to our readers?

-I have over 25 years of experience, which includes investment banking, portfolio management, corporate turnaround, restructuring, privatisation and mergers and acquisitions. I am ranked as the Top Emerging Market Corporate Analyst by Institutional Investor Magazine (2016) and my firm M.Favale-Tarter, LLC was ranked by Euromoney Magazine in 2010, alongside UBS and Lazard, as the restructuring firm for the 2010 CEE restructuring deal of the year.  I am also a founder of an innovative technology company that is a paradigm shift in digital media. Very few people have experience in the complete finance value-chain and are able to lever this knowledge to serve as an Independent Advisor effectively influencing positive outcomes for my clients against vested interests. In this role, I have no conflicts of interest, and I therefore devolve the market know-how to my clients and create frameworks that execute the aims and objectives of my clients.
Understanding a country takes time, but I believe I have begun with a strong footing.  Mongolia is beautiful and full of potential.

-Marcia, how well do you know Mongolia? 

-I have had the pleasure to have visited Mongolia to meet a variety of organisations, allowing for a strong foundation of knowledge. Understanding a country takes time, but I believe I have begun with a strong footing.  Mongolia is beautiful and full of potential.

-You said that you worked as an advisor to the Prime Minister of Kazakhstan. What led you to serve this position? 

-There was a banking-related crisis in Kazakhstan due to the international financial crisis that significantly reduced liquidity in the capital markets. This lack of liquidity exacerbated the issues with BTA Bank, Alliance Bank and Temir Bank. I was asked to help resolve the issues with these banks that were significant as a percentage of GDP. Once I revealed the approach, now known as Burden Sharing restructuring, to the Prime Minister at the time, a visionary, I was invited to serve as the Senior Advisor to the Prime Minister.  It was important that the government had a conflict-free, competent and respected Independent Advisor that could further the country's objectives within the framework of best practice. However, best practice doesn't mean being subservient to the investor community. We debunked this notion that whatever is said by the international markets should be followed blindly. 

I began covering Kazakhstan in 2000 when I was a Managing Director and Head of CEMEA credit research at UBS in London. Through the years I developed a relationship with Kazakhstan, and when the crisis hit, the Governor of the National Bank Grigori Marchenko invited me to assist in the banking crisis. 

-How was the economic and financial situation of Kazakhstan when you arrived? What matters did you focus on and how did you advise the prime minister? 

-Kazakhstan’s banking system was dealing with rising NPLs (non-performing loans), a lack of liquidity and alleged fraud. I devised the Burden Sharing restructuring framework that has become an international benchmark and a subject of a case study published by the University of Oxford. It is taught worldwide in business schools and lauded by the IIF as a successful and in essence a game-changing restructuring by making investors partner in the process rather than bailing them out. This was a huge achievement given the adopted development market modus operandi was to blanket guarantee or bailout. We did something different. We decided to treat investors as professional investors, whilst preserving the investment grade rating of the country and minimising moral hazard, whilst keeping liquidity in the banks rather than with investors. This approach was a paradigm shift in decision-making responsibility and effectiveness. 

-Kazakhstan has been rapidly developing in recent years. Is this the result of good policies and structure? 

-Kazakhstan has stood out as a country with a leadership that has balanced economic growth with political stability. Every country has issues but overall the Kazakh government has adhered to policies benefiting the people of Kazakhstan by giving the people a continuously evolving country with a stability that provides a level of peace of mind. 

Some notable achievements include Kazakhstan leading in non-proliferation of nuclear weapons, in promoting peace for prosperity and in representing the region with a respected voice on the world stage. 

Not only was the Burden Sharing restructuring a notable achievement by putting the needs of the people ahead of professional investors, but also the People's IPO illustrates this focus on bettering the economic foundation in the country by elevating its people's participation in the economy. So, to answer your question succinctly, it is a function of vision, policies and evolving structural improvements. 

-You also worked on reforms of several foreign banks. Would tell us more about this. What reforms and changes were made, and what were the outcomes. What were the difficulties and the advantages?

-The Burden Sharing restructuring saved Kazakhstan around USD 30 billion. This saving meant that the Kazakh people came before international investors. We must keep in mind that investors are professionals. They should be held to their investment decisions without countries or at times private issuers bailing them out.  By adhering to this Burden Sharing framework, Kazakhstan retained its investment grade rating, and some issuers were able to come to market during the crisis at costs below crisis levels.  I had the pleasure of representing Kazakhstan at the Paris Club meetings in 2010 and was able to effectively make the case for the Burden Sharing framework. At the end of this restructuring process, the same creditors that were receiving a substantial discount voted overwhelmingly, over 90 percent, for the restructuring in an All-Credit Vote. 

Mongolia needs to develop its domestic capital markets. In Kazakhstan I devised the People's IPO privatisation to create a conduit of wealth to the people, spurring an investment culture that begins to sustain a domestic investment culture.

-How well do you know Mongolia's banking and financial sector? Almost 95 percent of our financial sector is dependent on the banking sector. Although certain steps are being taken to develop the stock market and other financial markets, there have not been any significant changes. What is your opinion on this matter?

-Mongolia needs to develop its domestic capital markets. In Kazakhstan I devised the People's IPO privatisation to create a conduit of wealth to the people, spurring an investment culture that begins to sustain a domestic investment culture. This takes time, but it is an important structural development for developing countries. Dependence of domestic financial entities is not a necessary negative as long as the actors are well regulated and able to provide a co-investment channel, augmenting the investment strength.  This outlook is important and as an Independent Member of the Board of Directors of the Development Bank of Kazakhstan, I am always vigilant of how best to use investment in furthering economic development. 

-Mongolia's economy is in crisis and the business sector is in a very difficult situation. What needs to be done for the economy and the business sector to quickly recover? What are your opinions on these?

-Mongolia should consider hiring experienced and tested Independent Advisors to devise the correct strategies and ensure its implementation. This is not to say that any Independent Advisor has the clout or experience to execute. Mongolia must accept that conflicts of interest exist in the typical advisory structure and complete dependence on the status quo promotes a less value-added cycle. Within this context, for a strong business sector to flourish, there needs to be a strong banking sector. Issues within the sector need to be dealt with quickly, but efficiently, with a view of the end purpose. The end purpose is not a quick unsustainable solution but one that allows for structural improvements.  

-Mongolia will soon pay a USD 580 million debt (this debt has been paid since this interview). Mongolia has a lot of debt in general. Mongolia has many issues, such as improving debt management and adhering to proper budget expenditures. How are these troubles addressed in other countries?

-It is not about how these issues are addressed by other countries, but rather how Mongolia should address its issues. The problem with many markets is that they follow blindly or meekly what global investment banks or multi-lateral agencies dictate. This does not ensure or underwrite success. Mongolia needs to work independently and propose its best outcome, controlling that narrative and information. This is where the right, not any, Independent Advisor is crucial.

-There are big business opportunities around the world. How can Mongolians create and harness such opportunities?

-Inward or outward investment has to be considered and structured within a policy construct. Mongolia needs not to only grasp investment opportunities provided but create and own the investment narrative and recognise that its resources are valuable and necessary to the world. Do not reach necessarily for the low-hanging fruit. Command your market and audience. 


Mongolian Economy magazine № 127, April