Capital markets to play crucial role in Azerbaijan’s fight against oil prices
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Emerging Markets

Capital markets to play crucial role in Azerbaijan’s fight against oil prices

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The head of Azerbaijan’s Pasha Bank tells Emerging Markets how he hopes plans for commercial paper and T-bills will help support local businesses and boost economic growth in the face of the impact of low oil prices

Low oil prices and the rapid devaluation of the manat may have hit Azerbaijan’s banking sector hard, but the country is taking big steps to develop its capital markets, Taleh Kazimov, CEO of Pasha Bank, told Emerging Markets on the eve of the EBRD annual meetings.

“The first problem we need to solve is the shortage of manat liquidity,” said Kazimov. “Pasha Bank is taking steps to bring new instruments to the financial sector. We are talking to clients about the introduction of short term commercial paper into the domestic market.”

The focus will initially be on the short end with commercial paper and T-bills in manat but Kazimov envisages that the market will be deeper, and be able to offer longer tenors by 2017.

At a time when Azerbaijan is taking steps to diversify its economy away from oil and gas, which previously made up more than 90% of the country’s exports, access to funding is becoming increasingly important for corporates in the telecoms, trade, manufacturing, logistics, tourism and IT sectors.

Low liquidity in the onshore market makes borrowing very expensive for the country’s corporates, while local regulation makes it difficult for foreign investors to enter domestic markets. Funding opportunities for the country’s non-commodity corporates are therefore limited.

Kazimov identified supporting local businesses through liquidity creation as the most important stimulus to economic growth in the region, particularly as it fits in with the government’s attempts to diversify the economy.

“At the beginning it is going to be in the local markets but with the development of the business climate, the volume of business will be enough to see issuers going to the international markets in 2017,” he said.

BOND ROADSHOW

Pasha Bank’s efforts are aligned with those of the Ministry of Finance, which began issuing Treasury bills in dollars for this first time earlier this year. The ministry aims to raise a total of ANZ400m ($264m) in dollar bills.

The one and two year notes were auctioned on the Baku Stock Exchange on February 5. Dollar notes amounting to ANZ12m were sold at 2.77% and 3.02% respectively, and six month and one year manat notes totalling ANZ12m were sold at 7.79% and 8.8%.

The government also completed a successful roadshow in the US for an international bond in January although though this is likely to be on hold until next year.

Privatisation in the public sector is also likely to become a feature of the markets as the finance ministry attempts to reduce strain on government balance sheets by attracting private investment.

“The government is working on privatisation plans and this will be one of the first drivers of the equity market,” he said. “Currently we don’t know of any issuers looking to IPO but I believe this is going to change.”

Azerbaijan has recently established a Financial Markets Supervision chamber to oversee financial sector development, a role it has assumed in place of the central bank. The chamber aims to improve transparency and to better regulate the market while clamping down on financial crime.

Azerbaijan’s economy grew by 1% in 2015 and the World Bank forecasts that this will fall to 0.8% in 2016. In December last year, the central bank abandoned its dollar peg causing the currency to fall by a third.



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