Azernews.Az

Sofar, Azerbaijan’s state oil fund that holds proceeds from crude exports, will no longer widely use US dollars, euros and pounds in the management of its funds, shifting the focus to investments in other assets including stock, real estate and gold.

Under the amended rules on holding, placing and managing Sofar’s currency reserves, introduced in accord with President Ilham Aliyev’s decree enacted last week, the requirement to hold 95 percent of the fund’s assets in dollars, euros and pounds was cancelled.

The presidential decree also made changes to the list of countries in whose currencies Sofar may place funds. Previously, Sofar could invest in the assets of G7 countries – USA, Germany, UK, France, Italy, Canada and Japan - as well as the European Union member states. The fund could also place funds in assets held in the currencies of countries with a long-term credit rating no less than "A" from Standard & Poor's and Fitch and "A2" from Moody's. According to the new rules, Sofar is also authorized to invest in Russia and Turkey’s assets.

Of note, the Russian and Turkish currencies are considered to be as reliable as those of the mentioned countries, as there are no credit rating requirements for investments in them.

The rules on placing Sofar’s funds have also drastically changed, as in addition to the previously designated assets, they can now be invested in real estate and gold bars.

The previous rules banned Sofar’s investments in precious metals and immovable property. However, due to the volatility in world financial and stock markets, gold has become more popular as an investment tool and its prices have soared. Therefore, for the past few months experts in Azerbaijan have been discussing placing a portion of Sofar’s assets in gold.

As for investments in real estate, the measure was taken given that prices for properties in world markets, particularly in Europe, have fallen in recent years, and the value of real estate is expected to grow in the coming years.

President Aliyev, addressing a recent cabinet meeting, announced Azerbaijan’s plans to invest in European countries, saying a part of the country’s currency reserves will be invested in real estate. "Potential investments in the European Union region are being studied and first steps are already being taken," he said. "In order to diversify our financial resources, we should place a part of our currency reserves in real estate."

Besides investments in real estate, the new changes allow Sofar to invest in stocks that are included in influential stock exchange indices.

Also, the new rules toughened the requirements on investments in securities. Whereas Sofar could previously invest in the securities and debt securities issued by major international financial institutions such as the World Bank, EBRD and Asian Development Bank, it can now invest only in those securities which received a relevant credit rating from such agencies as Standard & Poor's, Moody's and Fitch.