CAPITAL MARKET

After a prolonged period of stagnation, Azerbaijan’s securities market is gradually gaining momentum, driven in part by state and regulatory incentives. According to statistical data, market volumes increased 2.6 times last year, with transactions amounting to ₼72.5 billion. In 2024 alone, 72,272 transactions were recorded—5.3 times more than the previous year.

At a media seminar, market participants discussed immediate plans and prospects for the sector.

Legal Framework

Azerbaijan’s capital market has long been considered the weakest link in the country’s financial sector. However, in recent years, there has been a noticeable surge in interest in this widely used global instrument for securing additional financing, both for businesses and individuals. Further developments in this direction are expected soon, particularly regarding improvements to the legal and regulatory framework.

Murad Yahyayev, Chairman of the Azerbaijan Stock Market Participants Association (ASMA), stated that work is already underway on a new draft law, "On the Securities Market." He noted that the current law, adopted in 2015, has undergone several amendments over the years. "We are now assessing the extent to which this legislation aligns with market requirements and modern realities. The Central Bank of Azerbaijan is overseeing this review, while the FMA is engaged in practical discussions on market challenges," Yahyayev explained. He expressed hope that the law’s preparation process would be finalised within the next year and a half. "An improved legal framework will contribute to market development, enhance investor protection, and stimulate broader business interest in this sector," he added.

Challenging but Promising

The Baku Stock Exchange (BSE) has introduced a new development strategy for 2024-2026, aimed at revitalising Azerbaijan’s capital market and attracting fresh investments.

The BSE projects that the volume of bonds issued by state and private companies will increase by ₼2.8 billion over the next three years. Simultaneously, the market expects to attract ₼2.945 billion in investments from institutional and individual investors. Additionally, the capitalisation of the private companies’ share market is anticipated to reach ₼0.5 billion.

As part of its strategy to expand the state bonds market, the BSE plans to facilitate bond issuance by state-owned enterprises, offering consulting and informational support. This includes collaboration with state enterprises in organising roadshows—preparing companies for securities issuance—and identifying potential investors.

Farhad Mansurov, Senior Consultant of the BSE listing team, highlighted the complexities and advantages of the capital market compared to other financial instruments. "Strict transparency and financial reporting requirements make it a challenging yet rewarding avenue," he noted. "A company seeking to enter the capital market must fully disclose its financial status to the public, as it is our duty to safeguard the interests of all potential investors."

Mansurov pointed out that Azerbaijan’s capital market primarily focuses on bond issuance. "This market serves as a key element of alternative financing. Unfortunately, its development in Azerbaijan has only gained traction in recent years, but we are working to accelerate this process," he added.

A major highlight for this year is an upcoming initial public offering (IPO) scheduled for the third quarter. Notably, last year, the International Bank of Azerbaijan conducted its first-ever IPO on the stock exchange.

Innovations and Future Plans

Mansurov also outlined recent innovations at the BSE. Since late last year, the exchange has implemented a listing consultation programme to help new issuers navigate the market more effectively. "This programme is free of charge, and nine companies have already joined. We expect this number to grow," he said.

Additionally, the BSE is developing a system to track stock and bond price movements in real time, with updates every 5-10 minutes. Negotiations are underway with technology providers to support this initiative. "For such a system to be meaningful, a sufficient number of securities must be in constant circulation. We are working towards achieving this," a BSE spokesperson explained. Currently, stock and bond prices are published daily on the exchange’s website.

Another key development concerns the timeline for companies entering the market. From the moment a company submits an application, it takes approximately 45 days to complete the process, which includes preparing a prospectus, securing approval from the Central Bank of Azerbaijan, and opening an account at the National Depository Centre. "Yes, this process is longer than securing a bank loan, but issuing bonds offers distinct advantages, such as eliminating the need for collateral," a BSE representative pointed out.

For the BSE, a top priority is building investor confidence. The verification process for issuers has become more stringent: "In the past, weaker companies were able to enter the market. Now, the focus is on admitting only 'mature' participants with solid development strategies, corporate governance structures, and stable profitability levels. Without such measures, we cannot establish a robust investor base," Farid Akhundov, Chairman of the BSE Supervisory Board, previously stated.

Clearly, the BSE’s initiatives to develop the capital market are poised to positively impact Azerbaijan’s economy, fostering investment growth and improving companies’ access to financing on more favourable terms.