LONDON, MAY 23 2017 (The Conway Bulletin) — Azerbaijan’s reputation for economic competence was dealt another blow after creditors of the International Bank of Azerbaijan lined up to criticise a debt restructuring plan.

Senior officials unveiled the plan at a tense meeting with creditors in London, nearly two weeks after IBA failed to pay a scheduled repayment on a $100m loan. IBA now says that it has to restructure $3.3b of debt. This includes forcing creditors to take a 20% writedown.

In a statement after the meetings, Fitch the ratings agency said that the restructuring plan would effectively nationalise IBA’s debt without offering any essential structural reforms.

“The Negative Outlook reflects continued risks and uncertainty around the macroeconomic and financial sector adjustment under way,” it said.

IBA also said that it would sell off its subsidiaries in Russia and Georgia, IBA-Moscow and IBA-Georgia, as part of its restructuring plan.

IBA controls around 60% of Azerbaijan’s banking sector. The sector has been hit hard by the collapse in the price of oil which Azerbaijan relies on for income. This knocked around 50% off the value of the Azerbaijani manat in 2015/16 and forced the economy into a sharp recession.

Azerbaijani banks’ bad loans portfolios have grown forcing several to declare bankruptcy or merge.

The government has ploughed money into IBA to prevent it from defaulting, increasing its stake to 80% from 55%, and bought its bad debt.

Despite this state support, IBA still failed, embarrassing the government and its senior management.

Now, though, creditors have to decide whether to back the restructuring plan with a two-thirds majority needed to proceed. At its core the restructuring deal means that creditors will swap IBA debt for sovereign bonds, most at a 20% discount.

Many creditors were unimpressed.

Lutz Roehmeyer bonds at Landesbank Berlin Investment, including IBA debt, told Bloomberg News that he planned to vote against the deal.

Kazakhstan’s state pension fund is among the major creditors of IBA. Last week it emerged that it had bought $250m of IBA debt in 2014, shortly after the oil price had started to fall, drawing allegations of incompetence from MPs. The Kazakh Central Bank has opened an investigation into the purchase.

ENDS

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(News report from Issue No. 330, published on May 28 2017)