OIL GUARANTEES

The problems in the national banking sector stemming from to the devaluation of manat have resulted in an outflow of funds from the population and reduction of deposits. Thus, in January-July 2016, the volume of deposits decreased by 17% reaching $7.843 billion. The closure of several banks due to inconsistencies with the regulator standards had played a certain role in this process as well.

The measures that the government is taking to restore confidence in the banking sector are making progress: the volume of deposits, though not significantly, but has increased during the last two months.

In any case, a relatively large portion of the population still keeps the funds at home. In practice, apart from bank deposits, the population had no chance to invest the surplus funds to anywhere.

The situation is changing for the better now. And the first step in this direction was taken by SOCAR.

All for the people

On the Oilmen's Day, September 20, SOCAR launched the company's first sale of five-year bonds.

The volume of SOCAR’s debut five-year domestic bonds emission is $100 million (1 share = $1,000). Bond yields are equal to 5% per annum. Under the terms of initial bonds sale, any Azerbaijani national and local company may acquire the bonds. Acquisition by foreign nationals and companies is possible only in the secondary market.

Today, SOCAR’s President Rovnag Abdullayev said that the company had no problems with the borrowing of funds from foreign markets, and the decision on release of domestic bonds is aimed at creating investment opportunities for the population.

According to him, as soon as SOCAR’s decision on emission of bonds went public, the company started getting purchase offers from potential investors from abroad. But the purpose of this placement SOCAR bonds is to create new attractive financial instrument for the population, as well as a new tool to raise funds.

The emission of dollar bonds will reduce the dollarization of the national economy, as the funds derived from the placement of SOCAR will be used for payment of interest on previously emitted by Eurobonds.

By the way, according to Rovnag Abdullayev, the domestic market showed high interest in the emission of dollar bonds during the first days of placement. It is possible to emit another set of bonds in the current year. At the same time, he noted that the bonds yield will be less than 5% per annum, as in the case with the debut placement. "We do not want to create problems for the banks that offer interest on public deposits kept in foreign currency at the rate of 3% per annum", he added.

In addition, SOCAR attracts loans from foreign banks on annual rate of 2.5%. Today, the total amount of borrowed funds reaches $6 billion.

At the same time, SOCAR is going to start emission of manat bonds binding them to Manat-US dollar exchange rate as early as next year. This operation will contribute to the strengthening of the national currency, manat.

On the other hand, successful operations with SOCAR bonds help restore public confidence in the financial system. According to SOCAR’s President, the company is able to buy back the entire amount of bonds issued on a single day, as it has assets of $40 billion.

Undoubtedly, the measures taken by SOCAR not only will revive the situation in the financial market, but may be a signal for other leading companies to think about attracting free funds of the population by actively employing the opportunities of the securities market.

In anticipation of company shares

With the increase of the number of companies placing bonds and other securities, the population will get additional tools in the financial market. The placing of shares of leading national companies will definitely draw a completely different picture, both in terms of revenues and investment reliability of the population.

According to Rufat Aslanli, Chairman of the Board of Directors of Financial Markets Supervision Chamber (FMSC), SOCAR is one of the so-called blue chips. He expressed his hope that the time will come when the oil company will start selling own shares instead of existing bonds.

At the same time, according to Assistant to the President of Azerbaijan on economic reforms Natig Amirov, although the government has intensified the process of privatization of state-owned enterprises, it is too early to trade the shares of large enterprises, as the corporate governance standards should be implemented first in the company. The companies must comply with the transparency requirements, and their financial statements should meet international standards. According to him, only SOCAR meets international standards in Azerbaijan.

However, the state does not intend to sell SOCAR shares yet. The emission of bonds is of great importance for the development of securities market in Azerbaijan. The company has made a very urgent step by selling bonds in Baku after the sales at London and Frankfurt stock exchanges.

In any case, the government needs to intensify the activity of local companies in the securities market. After all, the current slogan to attract free funds through SOCAR bonds Siz qazanın, ölkəmiz qazansın! (You win, the state wins!) may be relevant for the implementation of future projects in terms of attracting free funds of population due to sales of bonds or company shares.

In addition to the contribution to the national economy, the intensification of securities market will provide additional sources of income to the population, as we have seen in many developed countries.