Bankrupt Dictates Rules of Game

Baku / 17.05.17 / Turan: The International Bank of Azerbaijan (IBA), ranking first among the country's credit institutions by assets, announced the non-fulfillment of external monetary obligations. On May 10, it did not pay the debt of $ 100 million due to Rubrika Finance Company Limited, thereby announcing a partial default and a plan to restructure external liabilities.

It became known that the restructuring will affect 37 deals, as the Chairman of the IBA Board Khalid Ahadov recently announced. According to him, the total amount of external loans falling under the restructuring is more than $ 3.3 billion. Already next week, on May 23, a meeting with foreign creditors of the bank is planned in London. According to the law, an adequate decision will be made on the basis of the consent of the majority of voted creditors.

Local experts talk about the legality of the decision on restructuring, the failure of the government's plan to save this bank, the ineffectiveness of anti-crisis measures, and the soundness of the plan of loading the burden of paying the debts on the state. The transfer of the 3.3-billion debts to the state means repaying the loans from the budget. Foreign partners do not care about these changes and nuances. They want clear answers to the questions on the schedule of payment of the debts. "In addition to voting by creditors for the decision, an important factor is the fairness of the implemented plan. This factor depends on mutual agreement. Soon we will hold discussions with creditors and reach an agreement on when and on what terms the restructuring plan will be implemented," Ahadov said.

Few people doubt that an option of debt repayment convenient and acceptable for the IBA will be accepted. The matter is that, according to Bloomberg (the article is called Azerbaijan Turns Creditors of Largest State Bank around Finger), the IBA included two deposits of the State Oil Fund of Azerbaijan for $ 500 million each in the restructuring. Thus, SOFAZ became the only national lender on the list, including, in particular, American Cargill Financial Services International Inc. and French Societe Generale SA.

But SOFAZ, like the bank itself, is controlled by the state, which means that including its deposits in the restructuring program will provide the lending institution with almost a third of the votes necessary for the proposed plan to become mandatory even before negotiations with the investors begin.

"The bank is likely to achieve what it wants," said an analyst at the Center for Assistance to Economic Initiatives Samir Aliyev. The deposits were included in the list "in order to secure approximately one-third of the creditors' votes at a meeting in London next week."

According to the document presented on Friday, each creditor "will receive one vote for each $ 1 of principal and accrued interest." The plan will come into force if it receives two-thirds of the vote.

However, Bloomberg also paralleled the tactics of the actions of the IBA and once the largest bank of Kazakhstan, Samruk-Kazyna, whose debts amounted to $ 16.7 billion, which allowed the consent of 92% of the creditors to restructure this credit institution. It is also interesting that the State Pension Fund of Kazakhstan owns IBA Eurobonds with repayment of approximately $ 250 million, which is also included in the restructuring plan, in 2024.

Azerbaijan has quite large financing needs to motivate the country to more "friendly" negotiations than in the case of Kazakhstan's BTA, Timothy Ash, senior strategist at Bluebay Asset Management for Emerging Markets in London, wrote by email. "They need to be careful in building relationships with institutional investors," he said.

The economies of Kazakhstan and Azerbaijan, the second and third largest oil producers among the countries of the former Soviet Union, weakened after the collapse of commodity prices. However, the anti-crisis measures of the Azerbaijani authorities aroused more criticism, particularly in connection with the delay in the weakening of currency control and the contradictory policies of the Central Bank. -0----