Bloomberg reports that the International Bank of Azerbaijan missed a principal and interest payment on a $100 million subordinated loan on May 10. The price of the bank’s $500 million of 2019 dollar bonds tumbled 16 percent on Thursday, lifting the yield 9.45 percentage points to 14.806 percent. The yield climbed 57 basis points as of 12:05 p.m. in Baku on Friday. The rehabilitation was due to announcement on switching to the second stage of bank’s normalization.
“We hope that the government may finally offer an acceptable, ‘no-pain’ for debt investors, ‘par-to-par’ exchange without haircut,” Egor Fedorov, a senior credit analyst at ING Groep NV in Moscow, said by email.
Azerbaijan is “making a lot of steps towards international investors in the international arena” and, in a worst-case scenario, “the debt restructuring will create negative risk perception,” he said.
Yesterday, the International Bank of Azerbaijan announced about switching to the next stage of normalization measures on preparation for privatization of bank’s state-owned shares.
According to the report, these measures cover purchasing IBA’s troubled assets via payments of value, liquidity support and restore capital losses. The state has already acquired toxic assets of AMB worth 9.93 billion manat, to provide liquid support in the bank placed deposits of $ 1.3 billion and 70 million manats. In addition, to facilitate the bank's capital position in January 2017, part of the deposits in the amount of AZN 600 million placed in the bank by the state were aimed at increasing the capital.
Although these measures strengthened the bank's financial and liquid position, high interest payments, the devaluation of manat against major foreign currencies, the incompleteness of the state's acquisition of toxic assets caused additional AMB losses. As a result, according to the results of 2016, according to the international financial reports, it is expected to disclose the damage of the International Bank Group (including the bank's subsidiaries) in the amount of 1.9 bn manats and damage to the Ä°BA in the amount of 1.74 billion manats.
The next stage of the health process is expected to be voluntary restructuring of liabilities. Within the framework of voluntary restructuring of liabilities, it is planned to directly transfer to the state debts in foreign currency, attracted from certain financial institutions in accordance with the law "On Banks".
The plan for voluntary restructuring of obligations was coordinated with the Financial Markets Supervisory Authority (FIMSA) in accordance with banking legislation and on May 4, 2017, the Nasimi District Court decided to start the restructuring process. It is planned to implement the restructuring plan on the basis of the approval of at least 2/3 of foreign creditors during the planned meeting.
Before the completion of the transfer of debts to the state, the fulfillment of obligations (excluding interest payments on trade financing transactions) in foreign currency, attracted from foreign creditors, is suspended.
All other IBA obligations, including protected, unprotected, term deposits and demand deposits of Azerbaijani citizens, legal entities and other non-residents, which are stored in national and foreign currencies.
As a result of the measures taken, the IBA's currency position is resolved, the financial position will be strengthened, and the ability to generate profit will be restored. Also, the capital position of the bank will return to the regulatory framework.
"There is concern about the weakening of the financial and capital positions of Ä°BA. Restoring the financial stability of an IBA is important for the provision of financial services, which is of great importance for the economy of the republic. The current measures are an important step to ensure financial stability and these measures are fully supported by the Ministry of Finance. The Finance Ministry hopes that IBA lenders in foreign currency will support the restructuring plan. The state takes a big step for the bank and in fact, increasing the national debt, accepts the debts of the IBA. At the same time, the Ministry of Finance notes that there will be no impact from the proposed restructuring plan on the IBA's depositors and the bank will continue to provide services and carry out operations in the same form", Minister of Finance Samir Sharifov said.
The IBA recovery process is carried out under the consecutive supervision of the Financial Market Supervision Authority of Azerbaijan (FIMSA).
As a result of all these measures, the long-term financial stability of the IBA will be ensured and on the eve of privatization the market value will grow.
The Ministry of Finance reports that at this stage it is envisaged to include part of the IBA currency obligations to the sovereign obligations of the Republic of Azerbaijan, which is the largest bank that plays a significant role in the implementation of settlements and social payments, providing broad-spectrum banking services.
In connection with this, a restructuring program was developed to transfer the foreign currency liabilities of the bank to foreign creditors to the Ministry of Finance.
The proposed restructuring program will significantly reduce the level of the bank's debt, will be an additional incentive for health measures, and will make a positive contribution to ensuring reliability, long-term financial sustainability and simplification of privatization in the future.
The Ministry of Finance says that the steps taken to restructure, replace the obligations of the IBA with state obligations (for this purpose, issuance of government bonds denominated in foreign currency is provided to creditors), the government's approval of the restructuring plan are important steps to improve IBA, designed to increase confidence and support creditors.
This practice, applied to support the banking sector in the United States, Great Britain, Ireland and other countries, will ensure a reduction in the level of debt, improve financial health, increase rationality of operations, and become a strong financial institution supporting the country's economy.
Operations on all other IBA obligations, in particular, currency and manat deposits and bank accounts of citizens, legal entities and other non-residents of the Azerbaijan Republic will continue in the current regime. To fulfill these obligations, the bank has sufficient amount of free financial resources.
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