US$ 25 million convertible bond facility in Azerbaijan
The European Bank for Reconstruction and Development (EBRD) and DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH, member of KfW Bankengruppe, have subscribed to the convertible bonds being issued by Unibank, one of the leading private commercial banks in Azerbaijan.
The EBRD has purchased US$ 17.5 million worth of convertible bonds and DEG has signed up for bonds worth a total of US$ 7.5 million. The convertible bond facility is the first of its kind in the country and is designed to support the bank’s capital base as well as provide long-term liquidity that will allow Unibank to continue lending to the real economy, including financing of small and medium-sized enterprises and retail customers.
“Although global markets have started to gradually recover, the macroeconomic environment remains fragile with limited access to long-term funding. In this context, convertible bonds represent an important financial instrument which provides not only funding support to Unibank, but also serves as a capital cushion against a potential portfolio deterioration. The conversion element is an innovative component of this facility, which promotes the development of local financial markets,” said Mike Taylor, EBRD Director for Financial Institutions in Central Asia, Caucasus and Mongolia.
“With this innovative funding instrument Unibank will further strengthen its refinancing structure and get sustainable funds for growth. The conversion option provides the investors with a tool to convert the bonds into equity, if necessary. This combination makes the instrument attractive for both sides, Unibank as well as the investors,” said Dr. Andreas Zeisler, Head of DEG's Financial Institutions Department.
“We are proud that Unibank as the pioneer of the international best practices in Azerbaijan banking industry is introducing convertible bonds which is the first of its kind in the sector. It is another proof of the confidence that the international investors maintain in Unibank. We are pleased that these funds will be channelled to the small and medium size enterprises in Azerbaijan,” said Faiq Huseynov, CEO of Unibank.
Unibank is one of the top ten banks in Azerbaijan in terms of its assets. As of end-2010, Unibank’s assets and the net loan portfolio amounted to over US$ 465 million and US$ 329 million, respectively, with a regulatory share capital comprising US$ 56 million, according to the Central Bank of Azerbaijan.
EBRD’s relationship with Unibank dates back to 2003 in the form of equity and various debt facilities. EBRD currently holds 15 per cent of shares in Unibank and its outstanding exposure to the bank is at US$ 26.7 million. DEG has cooperated with Unibank since 2005 and its current exposure to the bank comprises US$ 26.3 million. DEG holds 8 per cent of the shares in Unibank.
The EBRD has been operating in Azerbaijan since the country’s independence in 1991 and to date has invested US$1.6 billion. The Bank’s activities are focused on the financial sector, the real economy outside of oil and gas and the development of the country’s infrastructure.
DEG activities in Azerbaijan are focused on financial sector. Its total investment portfolio amounts to US$ 57.4 million.