Page 18 - bne IntelliNews 26th May

Eurasia
May 26, 2017 www.intellinews.com I Page 18
IBA’s restructuring plan expected to be approved, says Moody’s
bne IntelliNews
The International Bank of Azerbaijan’s (IBA) debt restructuring plan, made public on May 23, is expected to be approved by creditors, Moody’s analyst Maria Malyukova told bne IntelliNews on the sidelines of a conference in Baku on May 26.
The crisis-hit banks’ creditors have until July to approve a plan that will comprise of swapping IBA obligations for sovereign ones, resulting in haircuts, extended maturity rates for notes, and lower yields. If they refuse to approve the plan, the alternative would be the bank’s liquidation, Malyukova explains, which would involve even higher losses for creditors.
After the bank made its plan public, Fitch Ratings downgraded IBA from ‘CCC’ to ‘RD’ (restricted default). Moody’s is unlikely to follow suit, Malyukova says, because its current rating
of ‘Caa3’ reflects the 25% to 30% losses it anticipates for creditors.
IBA, Azerbaijan’s largest bank, announced on May 11 that it would halt foreign currency- denominated loan repayments in order to restructure its forex obligations and swap
them for sovereign debt. It has $3.33bn of outstanding debt, with US-based food giant Cargill and Citibank amongst its largest creditors. The struggling bank’s default came as a shock because it was rescued by the state in 2015 and was being recapitalised and cleaned up prior to a planned reprivatisation.
The bank’s credit restructuring plan, announced on May 23, also angered some of its creditors,
IBA has $3.33bn of outstanding debt, with US-based food giant Cargill and Citibank amongst its largest creditors.
particularly those that hold less senior types of credits, such as Ireland’s Rubrika Finance, which is faced with a 50% haircut on the subordinated debt it holds.
In its debt restructuring plan, IBA granted much more favourable terms to trade finance creditors such as Cargill compared to all other creditors, including the holders of its $500mn Eurobond.
It is believed that IBA’s decision was strategic
– it owes some $714mn to the trade finance arm of Cargill, representing more than a fifth of its $3.33bn worth of foreign debt. The Azerbaijani sovereign wealth fund Sofaz is owed another $1.1bn in deposits. Two-thirds of creditors need to approve the plan in order for it to pass. So
by granting favourable conditions to Cargill,
IBA likely ensured its backing and therefore the approval of the plan.
Malyukova added that the bank’s surprise default on its foreign debt came as a result of its sizeable losses of AZN2.25bn (€1.2bn) in 2016, the majority of which were due to its open currency position. “The government has already provided lots of support to IBA by taking over AZN10bn worth
of bad debt representing 18% of GDP in 2015- 2016. But the losses from the open currency position [AZN1.3bn] last year were so high – its management and the government probably did not anticipate such big losses – that they decided to restructure the debt and share the burden with creditors,” Malyukova says.
Just like the bank’s investors, Moody’s was taken by surprise by the debt default, she adds,