SOFAZ to invest $500 mln in yuan assets in 2015

By Aynur Karimova

Azerbaijan’s state oil fund SOFAZ will invest $500 million in yuan assets in 2015. Meanwhile, it will continue to pursue real estate across Asian markets to diversify its portfolio.

“At the end of last year, we approved a quota to invest in the renminbi. We are completing all the necessary paperworks and this year will start investing the whole amount” of $500 million,” the fund’s Executive Director Shahmar Movsumov said in his recent interview, referring to the Chinese Yuan.

China as the second largest economy in the world remains an attractive market for the growing number of foreign investors. Prospects of the Chinese Yuan as an additional investment currency attract considerable interest of various categories of investors, including sovereign wealth funds.

“We’ll continue to look at South Korea” for properties, Movsumov said. “We’re looking at Japan, Hong Kong, Singapore and China. All the main hubs in Europe are in our agenda. We’re looking for very prime assets, which are intended to actually replace our very low-yield bonds that we have in our portfolio.”

Touching upon the ruble crisis, Movsumov noted while SOFAZ broadens its investments, it will hold on to its ruble holdings even after the Russian currency’s worst crisis since 1998.

SOFAZ owns a 2.95 percent stake in VTB Bank, the second largest bank of Russia. The cost of this acquisition amounted to $500 million.

“We will keep our ruble investment,” Movsumov said. “VTB is a very long-term strategic investment. We believe in VTB Bank. It’s one of the strongest banks in Russia.”

Azerbaijan has responded to the plunge in oil prices by defending its currency even as economic growth slowed. Movsumov said crude prices will probably stabilize and recover in the second half of the year.

“Obviously, nobody expects them to come up as rapidly as it happened in 2009 and 2010, but they will come up from the levels we see right now,” he said. “Lower oil prices will mean SOFAZ’s assets may shrink by about $3 billion.”

Movsumov went on adding that the reserves accumulated in SOFAZ will help the country to ride out the difficulties.

“We’ll be able to protect our currency,” he said. “Although we’ll reduce spending, we’ll do so in a very controlled manner without damaging the real economy.”

SOFAZ, an entity that accumulates and manages Azerbaijan's oil and gas revenues, was established in 1999 with assets worth $271 million.

The main purposes of the fund are accumulation of funds and placement of assets abroad to minimize negative impacts on economy, prevention of the 'Dutch disease', ensuring savings for future generations, and maintaining the current social and economic standards in the country.

SOFAZ assets are placed partly in securities, money market instruments (deposits, bank accounts).

According to SOFAZ's investment strategy, up to five percent of the investment portfolio may be invested in stock, up to five percent in real estate and up to five percent in gold.

The investment strategy of the fund is aimed at selection of high quality office and retail properties in the central cities of the world countries with developed and transparent real estate markets.

Earlier SOFAZ purchased Gallery Actor, a mixed-use office and retail complex located on Pushkin Square in Moscow for $133 million, an office complex in London's West End for £177.35 million and a property in Paris for €135 million, and Pine Avenue Tower A worth $447 million in Seoul.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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