Tag Archives: business

Zenith ramps up exploration in Azerbaijan

JAN. 27 2016 (The Conway Bulletin) — Toronto-listed Zenith Energy created a subsidiary called Zenith Aran Oil to explore three fields in central Azerbaijan. Current production is low, 350 barrels/day, but the company says the fields have a larger potential. Zenith said the decision to form a subsidiary is “indicative of both Zenith’s long term commitment to Azerbaijan and plans to exclusively focus on the recently acquired fields.”

ENDS

(News report from Issue No. 265, published on Jan. 29 2016)

IMF flies to Azerbaijan for talks on $4b loan

JAN. 27 2016, BAKU (The Conway Bulletin) — An IMF delegation flew to Baku for meetings with Azerbaijan’s government over a potential loan to buffer it against a financial storm that now threatens to seriously damage its economy.

The FT newspaper reported that the the loan could hit $4b, although an IMF statement later dodged giving specific numbers.

“An IMF team will be in Baku during Jan. 28 – Feb. 4 for a fact- finding staff visit at the authorities’ request. The team will discuss areas for technical assistance and assess possible financing needs,” it said in a statement.

Azerbaijan’s finance minister, Samir Sharifov, though, played down reports of a loan.

He instead said that Azerbaijan was going to raise $2b by selling debt for the Southern Caucasus Gas Corridor Company, which manages various pipelines, and pipeline projects, running from the Caspian Sea to Europe.

“There is no urgent need for a loan, but we can raise loans to support the economy amid low oil prices,” Mr Sharifov told journalists in Baku of talks with the IMF.

If Azerbaijan did take an IMF loan it would be the first emergency loan given to a sovereign state during this current financial downturn. Taking an IMF loan would also dent Azerbaijan’s pride. Fuelled by high oil prices its economy has boomed over the past 15 years. The government has invested heavily in promoting its reputation as a bridge between the East and West, building grandiose towers and sponsoring major sports events.

But the government has failed to shift Azerbaijan from a petro-econ- omy to a more dynamic economy with several income streams. Instead, Azerbaijan still receives around 95% of its export revenue from oil sales.

And with oil prices at around 12- year-lows this has begun to hurt.

The government has slashed spending, inflation is soaring and jobs are melting away. The manat currency has dropped a third in value in the past month and frustrated ordinary people are beginning to speak out and protest against the government.

A Conway Bulletin correspondent in Baku said people in the streets were increasingly referring to the current economic downturn as a “crisis”.

ENDS

(News report from Issue No. 265, published on Jan. 29 2016)

Azerbaijan Central Bank closes banks which fail capital stress test

JAN. 27 2016 (The Conway Bulletin) — Azerbaijan’s Central Bank stripped six banks of their licences because they failed to meet newly imposed minimum capital requirements, a strong signal that the authorities want to weed out weaker banks to try to fend off a deepening financial crisis.

The six banks — Ganja Bank, Bank of Azerbaijan, United Credit Bank, NBC Bank, Caucasian Development Bank and Atrabank — all lost their licences in the past 10 days. This leaves just over 30 banks operating in Azerbaijan.

“Banks that don’t meet requirements and have major shortcomings can’t operate in Azerbaijan,” President Ilham Aliyev said in a televised statement, hinting at more closures.

In mid-2012, Azerbaijan’s Central Bank increased by five times the minimum capital requirements for commercial banks from 10m manat to 50m manat (then around $64m, now $31.3m). The deadline for all banks in the country to comply with the new requirements was first set for 2013 and then delayed to end-2015.

For banks, one way to avoid closure and improve financial health is to unite. AGBank and DemirBank signed a protocol to merge last week and Pasha Bank, Kapital Bank and Atabank are in talks to create a single lender, according to Bloomberg.

Last week, ratings agency Moody’s downgraded several of the biggest banks in Azerbaijan, a direct consequence of the negative impact of the manat depreciation. Three of Azerbaijan’s top-10 banks, Xalq Bank, Bank of Baku and Unibank, were among the lenders on Moody’s radar.

With the Azerbaijani manat falling by 35% since Dec. 21, this is a particularly tough time for Azerbaijan’s banking sector and for ordinary people. The IMF has also flown into Baku to potentially offer a loan.

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(News report from Issue No. 265, published on Jan. 29 2016)

Business comment: Tough times for banks

JAN. 29 2016 (The Conway Bulletin) — Government policies towards the banking sector are key to survival during tough economic times.

In this new downturn, which has already lasted longer than the 2008/9 Financial Crisis, commodity prices have collapsed, hitting oil- exporting countries.

Kazakhstan and Azerbaijan have been among the hardest-hit economies in the South Caucasus and Central Asia.

In mid-2014, Kazakhstan planned to restructure its banking sector by imposing greater capital requirements. The Central Bank wanted the country’s banks to

increase their capital from 10b to 100b tenge ($54m to $543m at the time).

But in August 2015 the Central Bank abandoned the tenge peg to the US dollar, allowing it to fall sharply.

This relieved pressure on its currency but knocked plans to increase capital requirements for banks.

Bank deposits in Kazakhstan are now insured by the government. If the Central Bank had pushed forward with its new capitalisation plan after ditching the tenge-US dollar peg it would have meant that smaller banks would have had to close. The government would then have been under pressure to repay customers who had lost savings. Kazakh officials dodged this by scrapping the plan.

Azerbaijan, by contrast, has pushed ahead with increasing capital requirements at banks despite a 35% fall in its currency over the past month. This has forced small banks to close and larger banks to merge.

All this before introducing universal insurance on deposits. Until now, only savers with up to 30,000 manat ($18,400) were insured.

Time will tell which of the two strategies pays off.

ENDS

(News report from Issue No. 265, published on Jan. 29 2016)

LG Group scraps project in Kazakh city

JAN. 26 2016 (The Conway Bulletin) – South Korea’s LG Group dropped a $4.2b project to build a petrochemical plant near Atyrau in western Kazakhstan because of continued low oil prices. The cancellation is perhaps the biggest project to be ditched during the current economic slowdown.

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(News report from Issue No. 265, published on Jan. 29 2016)

Kazakh bank unveils strategy

JAN. 26 2016 (The Conway Bulletin) — Kazkommertsbank, one of Kazakhstan’s largest lenders, said in a statement that it is working with international consultants on developing a new business strategy to improve the quality of its assets after a merger last year with the debt-ridden BTA Bank. Earlier this month, ratings agency Fitch downgraded Kazkommertsbank’s long-term credit to CCC from B- because of the fall in the value of the tenge.

ENDS

(News report from Issue No. 265, published on Jan. 29 2016)

Azerbaijan introduces tax exemption for investors

JAN. 25 2016 (The Conway Bulletin) – Azerbaijan’s finance minister Samir Sharifov said a new 20% tax on capital exports will not be imposed on foreign investors. The manat has lost around a third of its value since the Central Bank ditched a peg to the US dollar on Dec. 21. In response the government imposed various capital control requirements.

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(News report from Issue No. 265, published on Jan. 29 2016)

Azerbaijan’s Central Bank to compensate savers

JAN. 28 2016 (The Conway Bulletin) – Azerbaijan’s Central Bank said it would compensate customers of banks who lost savings in banks which have been stripped of their licences over the past couple of weeks. Legally, the Central Bank is only obliged to compensate up to 30,000 manat ($18,400). Around 6,600 customers will be eligible for the refund.

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(News report from Issue No. 265, published on Jan. 29 2016)

Hexagon Mining to increase its presence in Kazakhstan

JAN. 22 2016 (The Conway Bulletin) — Arizona-based Hexagon Mining wants to increase its presence in Kazakhstan after it signed a deal with local miner KAZ Minerals to develop two open pit copper fields. Hexagon will work with KAZ Minerals at Bozshakol and Aktogay, two of the company’s most promising greenfield sites.

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(News report from Issue No. 265, published on Jan. 29 2016)

Mine worker dies in Kyrgyzstan

JAN. 25 2016 (The Conway Bulletin) – A man working at the Centerra Gold-owned Kumtor gold mine in Kyrgyzstan died in an accident. Neither Centerra Gold nor the Kyrgyz government, which owns a stake in the company, have commented on the accident. The Kumtor gold mine is the single biggest economic asset in Kyrgyzstan and is the focus of an ownership row.

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(News report from Issue No. 265, published on Jan. 29 2016)