Azerbaijan’s biggest bank has offered creditors, including Fidelity and Allianz, a series of concessions in a bid to calm disquiet over its $3.3bn restructuring, amid claims that its mishandling of the issue could hurt the country’s investor profile.
The state-run International Bank of Azerbaijan, under pressure from a US lawsuit, was forced into negotiations with a group of investors last week. The bank has offered creditors new terms, including extra amortisation payments on new debt, a guaranteed choice of new bonds and an increased interest payment.
But some bondholders say the company, which defaulted in May, is causing long-term damage to the Central Asian economy’s reputation by imposing haircuts, repayment delays and a forced exchange of bonds for sovereign paper, instead of tapping its national reserves.
“The new proposal is as disappointing as the previous one,” said Lutz Roehmeyer, a portfolio manager at Landesbank Berlin who holds IBA bonds and will vote against the new offer. “International investors can’t understand why an oil-rich country with a huge sovereign wealth fund does not have the money to pay back [investors].”
“Calculate the harm that could be done. Only a small increase in the future funding costs of Azerbaijan will be more costly than the small amount you save right now.”
A group of investors holding $220m worth of IBA bonds, led by Fidelity and Franklin Templeton, last week filed an objection against the restructuring in a US court. A second group, accounting for around $400m, met IBA this week to demand better terms.
“It is difficult to assess the level of bad blood . . . obviously the market was taken by surprise,” said Eric Lalo of Lazard Freres who is advising IBA on the restructuring.
“The revised terms we believe are a fair proposal,” he told the FT. “People were not happy because they anticipated IBA would be a sovereign risk. But it is not.”
He added that the restructuring plan has a “solid base of support”, but did not provide details.
Greg Saichin, chief investment officer at Allianz Global Investors, which holds IBA debt, said the proposed amendments to the restructuring are “marginally positive for bond holders without materially changing the essence of the original proposal” .
Creditors representing almost 40 per cent of the $3.3bn have said they will back the plan and holders of trade finance-related instruments are expected to support it. IBA needs some votes from other bondholders to proceed.
The new terms offer supportive creditors an extra 0.37 per cent in annual interest, and increase the number of payments on a new sovereign bond to be issued to creditors to three from two.
“[That] is something that can be interpreted as a concession,” said Mr Lalo. “It is not a huge gain, but it is a win-win for the [Azeri] Ministry of Finance and the creditors.”
IBA has also agreed to drop plans to force claimants to choose one restructuring option from a list of possibilities, and will now allow several choices — a demand made by asset managers.
It also abandoned a first come first served policy on choosing options in favour of giving all investors their first choice if they respond in an 11-day “early bird” period.
The meeting of claimants to approve the restructuring has also been pushed back five days to July 18.