Expert: SOCAR’s bonds enjoy obvious advantages

Azerbaijan’s state energy giant SOCAR has recently announced about issuance of its USD bonds for the domestic market of the country.

Head of the Fund for Entrepreneurship and Market Economy Support Sabit Bagirov said that SOCAR’s bonds have an obvious advantage over the placement of funds in deposits.

“First of all, SOCAR’s bond is a document of a state enterprise, which has a good reputation in the international arena. The fact implies higher level of guarantee as compared to deposits, which are placed in private commercial banks. Moreover, the annual interest yield of bonds is higher than the rates applied in reference to dollar deposits placed in banks,” he clarified.

The expert said that the issuance of bonds will also give an impetus to the development of the securities market in the country, mentioning that the current condition of the stock market is unsatisfactory.

Head of Kapital Bank Rovshan Allahverdiyev earlier said that the issuance of bonds may force banks, operating in the country to increase interest rates on dollar deposits.

“Banks may increase interest rate, should they face outflow of deposits,” he said, mentioning that it is too early to consider the issue.

Head of Azerbaijan Banks Association, Zakir Nuriyev however, believes that high interest rate on SOCAR’s bonds will not trigger outflow of foreign currency deposits from banks.

“The annual interest rate on dollar deposits currently stands at 2.53 percent. Little volume of issuance will not result in outflow of deposits, regardless the fact that yields on bonds is higher.”

Nuriyev said that the existence of different financial instruments is important, adding that it will help to diverse financial market of the country.

Meanwhile, the volume of foreign currency deposits stood at 6.3 billion manats ($ 3.8 billion ) as of August 1, according to the CBA.

SOCAR will issue some 100,000 bonds, while the nominal value of each is $1,000. The annual bond yield is 5 percent, while interest income is not taxable and will be paid quarterly. The sale of bonds will be implemented in "Asan" services №1 and №5. Citizens of the country will be able to receive interest yield in International Bank of Azerbaijan (IBA), Kapital Bank, Rabitabank, Xalq Bank. The bonds will be sold till October 10, 2016.

Bonds may be obtained only by Azerbaijani citizens and local companies, while foreign individuals and legal entities have a right to buy bonds from their owners on the secondary market. SOCAR guarantees the liquidity of the issued securities and the possibility of selling them at any time.

The issuance of bonds is considered to be a very important step for diversifying financing channels and creating investment opportunities for the population.