Oil slick

24 May 2017 By Neil Unmack Follow @unmack1

International Bank of Azerbaijan is restructuring $3.3 bln of foreign debt after loan and currency losses. Bondholders had counted on the Caucasus state to prop up the lender, despite weaker finances. The hunt for yield in emerging markets is bound to throw up other nasty shocks.

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State-owned International Bank of Azerbaijan on May 23 proposed terms to restructure $3.3 billion of foreign currency debt.

The restructuring affects $862 million of trade finance loans, $2.38 billion of senior bonds and a commercial deposit, and $100 million of subordinated debt.

Senior creditors will see their obligations switched into a new 12-year security issued by Azerbaijan with a face value equivalent to 80 percent of their original security and a coupon of 5.125 percent.

Alternatively, they can also choose to receive a security issued by Azerbaijan with the same face value as their original bond, but with a coupon of 3.5 percent and 15-year maturity. The third option is for a 7-year security issued by IBA with a 3.5 percent coupon.

Provisions for bad loans and foreign currency losses are expected to wipe out IBA’s capital, leaving it with a Tier 1 capital ratio of minus 9.8 percent for 2016.

The state has injected $7.8 billion into the bank through equity investments and asset transfers since 2007. The restructuring, alongside a further injection of capital, will boost IBA’s Tier 1 capital ratio to 13.25 percent.

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