Don't Bet on Calm in Azerbaijan's Bond Market

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Investors betting Azerbaijan’s debt problems will be contained at the nation’s biggest bank could be in for a shock, Bloomberg News reported. Sovereign yields may jump 40 basis points next week as more details emerge about the International Bank of Azerbaijan’s plan to swap its defaulted debt into new sovereign notes, according to Raiffeisen Bank International AG. On Thursday, Moody’s Investors Service warned the restructuring was “credit negative” for the state oil champion, known as Socar, which keeps about 40 percent of its cash and equivalents at the defaulted lender. “If the sovereign will assume additional obligations, it will definitely have an impact on the sovereign balance sheet,” Raiffeisen’s Gintaras Slizhyus said. “I wouldn’t buy at these levels.” A jump in borrowing costs could deepen Azerbaijan’s economic woes at a time when the crude producer is looking to external markets to raise capital for expensive energy projects. The $3.3 billion debt restructuring at IBA comes as the former Soviet republic tries to keep its currency stable after two devaluations in 2015 and the first economic contraction in two decades last year. Read more.