ALMATY, Kazakhstan, March 29, 2011 /PRNewswire/ -- Concern is brewing amongst the international business community in Kazakhstan around the treatment of Tristan Oil, an oil and gas business.

In an unprecedented move, the Prime Minister, together with the Minister of Energy, went to the headquarters of this privately owned business and told the staff they would be nationalizing the company.

The Ministry submitted formal notifications to Tristan Oil's two operating companies, Kazpolmunay (KPM) and Tolkynneftegaz (TNG), stating that it had cancelled their subsoil use contracts with respect to certain Kazakh oil fields.

These assets have now been expropriated with no proper legal foundation and the assets are now in the temporary custody of KazMunaiGaz, the state-owned oil and gas company.

Local business sources believe that the cancellation of these contracts is the final step in a systematic campaign waged by the Kazakh authorities in 2008 to illegally expropriate KPM and TNG's assets and the investments made by their stakeholders in Kazakhstan.

The Kazakhstan Government has now alienated the international bond holders by choosing not to pay interest on the Company's $420 million Eurobonds. When the company was privately owned the company made all payments on their Eurobonds and never defaulted. Legally it would appear the onus is now on the Kazakh Government to honour the coupon to the bond holders.

The memorandum for the Tristan bonds specifically states that the change of control of these oil fields constitutes a change of control for the company, at which point a put option is triggered.

Restructuring an oil and gas business is not comparable with restructuring a financial institution; there are tangible assets with revenue streams in place with the capacity to honour all financial commitments.

This move from the Kazakhstan Government at odds with the country's ambition to return to the international debt markets, at time when they need to demonstrate they are running a clean and stable ship.

The potential default on these bonds will hit the willingness of investors to lend to any non state owned company in Kazakhstan, a number of whom are listed in London.

Kazakhstan's Government has invested significant time over the last four years in trying to regain the trust of foreign investors. The country's financial institutions are expected back in the international debt capital markets over the next six months to a year.

Although emerging market investors were burnt by Kazakhstan bank bonds, towards the end of the restructuring process bondholders were considered to have been treated fairly through great efforts on the part of the Kazakhstan government. This new move will be an important consideration in the future evaluation of corporate risk in the country.

Taking into account concerns about the current political situation, with early re-elections and a cancelled referendum, all efforts should be made to allay international perceptions that this is an increasingly authoritarian regime and a less than favourable destination for international investment.