Can SOCAR be trusted to make good on its bond deals?


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This article was originally published in Azerbaijani on Radio Azadliq.

SOCAR has decided to borrow money from the domestic market. The company is offering 1000 dollar, five – year bonds at a 5% return rate. 100 thousand bonds are available for purchase.

A bond is a debt – that is, SOCAR would like to borrow 100 million dollars from the population, and plans to pay the sum back in five years. At the end of every year, 50 dollars will be payed to each bond holder for every bond he or she owns – this comes out to a total of 250 dollars.

SOCA bonds offered on the foreign market have been more advantageous 

SOCAR has already made a practice of selling bonds on the foreign market. Two of the last three Eurobonds offered to foreigners had more advantageous return rates than the ones currently being offered to Azerbaijani citizens.

It is worth mentioning that in the beginning of 2012, Azerbaijan issued bonds on the London Stock Market with a return rate of 5.45%. Later in March of 2013, the organization issued ten year bonds with a total value of 1 billion dollars, with a 4.75% return rate. 15 year bonds with a total value of 750 million US dollars, which promised a return rate of 6.95%.

Bank expert Akram Hasanov wonders how one can trust an organization whose legal status is not clear, whose structure completely lacks transparency and whose existence can be erased within a moment.

He compared bonds and bank deposits: “Bonds are in some ways like bank deposits. Only a client can retract his deposit whenever he or she wants. The money of a bond, however, is held by the company in question for the terms stated in the bond contract. So instead of trusting banks, citizens would be trusting SOCAR. This might make sense in the context of the current economic crisis, during the scope of which the people’s confidence in the banking sector has been totally shaken. But the reasons for entrusting SOCAR are not very convincing.”

Will SOCAR honor its agreements? 

Hasanov says that in economically well – to – do and stable countries, companies that release bonds have to respond to three conditions: the existence of objective laws and governance within the structure, transparency and success:

“Can SOCAR answer to such demands? In July I wrote that SOCAR’s legal status is mysterious and unclear, that its organizational structure is unknown and in the eyes of the law, there is no such legal entity such as SOCAR. SOCAR officials tried to answer these questions for me, but their explanations practically pointed to the illegal nature of the organization. I wasn’t able to clear up anything.”

SOCAR entirely lacks transparency 

Hasanov further underlined the fact that the country’s largest company, SOCAR, is not transparent:

“There is no corporate management. This is, of course, natural, because in reality, only one person is ruling the company. Abroad, such large companies are managed by boards of directors and independent observers. Because of the lack of public scrutiny, the company operates in ways understandable only to its own management. It sponsors projects with means that are not open to public inspection and son on.”

In Hasanov’s opinion, the company is operating unsuccessfully: “SOCAR is working with losses. Its foreign debt is enormous. That is why they are selling bonds…But SOCAR may be dissolved at any moment.

SOCAR bonds could possibly be seen as attractive

Economic expert, Vuqar Bayramov, thinks differently, and suggests that SOCAR bonds could be considered even attractive for some buyers: “Right now, Azerbaijani banks offer only 2 – 2.5% dividends, maximum 3%. And so, the 5% offered by SOCAR might be attractive to some, given that their rates are twice as high as those offered by the banks of the country.

Bayramov also said that because the level of trust for the national banks is already so low, this might work in favor of SOCAR’s problem with its public image. “The fact that it is a state company may also stimulate interest in this proposition,” he said