By Amina Nazarli
The Baku Stock Exchange (BSE) and the State Oil Company of Azerbaijan (SOCAR) organized a conference titled “Capital Markets of Azerbaijan: Opportunities and Prospects” in Baku on October 17 with the participation of over 100 representatives of the financial sector of the country and experts.
Ali Agaoglu, SOCAR’s chief consultant on capital markets, bankers and experts-economists spoke at the event dedicated to the anniversary of the issue of SOCAR bonds on the domestic market for $100 million.
Operations on bonds of Azerbaijan’s state oil company SOCAR exceeded $110 million on the secondary market, said Agaoglu.
The share of SOCAR bonds on the secondary market of corporate securities of Azerbaijan reached 77 percent for the past year, while the remaining 23 percent accounted for bonds of other issuers.
“Operations on SOCAR bonds amounted to almost $110.75 million during the year, while on bonds of other companies they exceeded $32.67 million. The demand for SOCAR bonds increased by 167 percent,” said the chief consultant.
SOCAR began selling its bonds, worth $100 million (100,000 bonds, each worth $1,000), on September 20, 2016. The sale of SOCAR bonds in Azerbaijan’s secondary market began on October 18.
Agaoglu said that SOCAR Capital company plans to carry out the second release of SOCAR bonds on the domestic market.
"We are working on this issue and it's hard to say when will the new SOCAR bonds be issued, but we have a plan for emission of at least 50 million in six months," he said.
He did not specify in what currency the bonds will be issued, as the company will take into account the situation on the foreign exchange market. In addition this will also depend on the implementation of SOCAR projects.
SOCAR bonds will be in circulation until 2021, with 5 percent yield and a payment carried out once in three months.
Interest payments on SOCAR’s bonds are made according to a pre-announced schedule (January 17, April 17, July 17 and October 17). Today, the fourth interest payment will be carried out. In general, the owners of bonds will earn $5 million.
Along with Azerbaijani citizens, SOCAR bonds can be purchased by foreign individuals and legal entities on the secondary market. Currently, investors from Russia, Turkey, Georgia, Kazakhstan and citizens of other countries are among the investors in SOCAR bonds.
BSE ready to hold IPO
The Baku Stock Exchange (BSE) is ready to hold an initial public offering (IPO), said Chairman of BSE Management Board Vugar Namazov.
Namazov said that traditional financing instruments can no longer fully function and, if before the BSE had to explain to companies the need to enter the stock market, now the companies themselves have begun to actively seek ways to attract investors.
“Currently, capital markets have become a necessity,” he added. “Thanks to the work done last year, we were able to successfully place the bonds worth $100 million of SOCAR.”
He went on to say that today the BSE operates as a modern platform of trading and post-trading service Centralized Trading Exchange system (CETA), which allows conducting about 25,000 transactions in a quarter of a second.
Speaking at the event Vusal Gasimli, Executive director of the Center for Analysis of Economic Reforms and Communication said that securities market creates very good conditions for increasing the liquidity of Azerbaijan’s financial sector.
“Currently, the level of liquidity only in the banking sector is about 5.2 billion manats. For lending to the economy, banks could use the securities market on a par with the current "deposit-credit" algorithm [when a deposit of one client is used as a credit for another client],” he said.
He reminded that strategic roadmaps provide for establishment of a “market of investors”. In this regard, it is necessary to diversify investment instruments.
“We should have many funding sources, but along with this, we also need to diversify the investor base. This is also a very important point. We need to create directions for investors. For example, institutional investor could finance global projects for economic development, and retail investor could invest in bonds,” he said.
Jalal Gasimov, PASHA Holding's first deputy chairman of the board, in turn, also agreed with the fact that Azerbaijan has a great potential for the development of the securities market.
"Today banks attract funds, mainly through deposits, but debt securities are more long-term and cheap resources could attract cheaper funds due to their placement banks," he said.
As for corporate clients, according to Gasimov, investments in securities can help them reduce their dependence on banks. Investments in securities can also help companies place their short-term liquidity.
For individuals, Gasimov continued, investing in securities is an opportunity to get a higher return. In his opinion, the main conditions for the development of the securities market should be the preservation of macroeconomic stability, the diversification of the real economy, the tax benefits for dividends from securities, the institutional strengthening of investors, and the weakening of requirements for companies in terms of their capitalization.
Amina Nazarli is AzerNews’ staff journalist, follow her on Twitter: @amina_nazarli
Follow us on Twitter @AzerNewsAz