By Dr. Emin Aslanov, Visiting Lecturer at Azerbaijan State University of Economics (UNEC), Azerbaijan. The article has been emailed by the author to BERNAMA to inform Malaysian investors and business entities about the financial environment and its perspectives in Azerbaijan.
KUALA LUMPUR, June 4 (NNN-Bernama) — Oil and gas have played a major role in the growth of Azerbaijan’s economy since the country’s independence in 1991. Azerbaijan signed an oil deal with a multinational oil corporation in 1994, allowing it to sell its oil and gas on foreign markets.
As a result, non-oil sector growth and economic diversification have become critical components of Azerbaijan’s economic reform agenda. In particular, the global market’s fluctuating oil prices, as well as evolving trends in international economics and politics, have created a necessity for a comprehensive economic reform agenda as an inevitable policy challenge for Azerbaijan.
In this regard, development of agriculture, information technology, foreign transportation corridors, and entrepreneurship have been prioritised in Azerbaijan’s economic reform policy.
Following these goals, the Government of Azerbaijan has established numerous supplementary structures to duly enhance the reform process. Some components of the structural development efforts have included betterment of the country’s financial system encompassing the securities market besides other essential financial tools.
Since it is a new and young sector, there are both potential opportunities and challenges in Azerbaijan’s stock market. As mentioned by Jeyhun Ibrahimov, Chairman of Managing Board of Association of Azerbaijan Stock Market Participants during his interview in 2018, “securities market of Azerbaijan is using only a small part of its potential”.
He also mentioned in detail that with the necessary infrastructure, a modern trading system, potential buyers, and sufficient profitability, Azerbaijan’s securities market has wide prospects.
In order to handle the liquidity problem of the economy, President of Azerbaijan Ilham Aliyev has launched a State Programme on Securities Market Development Programme in 2011 to further advance this area.
The State Programme “Development of the Securities Market in the Republic of Azerbaijan in 2011-2020” has been implemented, and contributed to the progress of the securities market.
According to the above-mentioned document which is considered as a strategic paper by the Government of Azerbaijan, “the securities market is a set of legal and economic relations between the subjects of issuance, issue, circulation, payment, ownership, storage, conclusion of transactions with them, conducting other operations”.
It also shows that the securities market serves as an intermediary in the timely conversion of securities into capital, a process known as liquidity.
As it comes to the legislative framework and current state of the securities market in Azerbaijan, this area is regulated by the Azerbaijani law on financial securities. At present, it is possible to trade stocks, corporate and government bonds, as well as currency and commodity-based derivatives in Azerbaijan.
In addition, there are REPO (repurchase agreement) agreements between other banks, including the Central Bank. There are dealers in the market who make market-makers to trade some corporate bonds and all kinds of derivatives at any time, which is a factor that stimulates supply and demand.
Annual yields on government bonds range from 1.5 to 4.25 per cent, annual yields on corporate bonds between 8-13 per cent, yields on equity valuation up to 60 per cent, and yields on credit-backed securities more than 100 per cent per annum.
Simplification of documentation and further acceleration of account opening operations can be included in the list of steps taken to attract the attention of foreign investors. With the support of the state programme, the services provided by market participants are in the process of rapid electronification. Certain tax and transparency reforms in the field are going on at the moment.
In general, the most traded investment instrument in the Azerbaijani securities market is identified as bonds of the State Oil Company of the Republic of Azerbaijan (SOCAR). According to the official records reflecting the first quarter of 2021, the bonds issued by the SOCAR hold 62 per cent of the corporate bonds market in Azerbaijan.
At present, the interest of companies from public and private sectors in the securities market is growing day by day in Azerbaijan. For example, the placement of bond securities of the state-owned AzerGold Closed Joint-Stock Company by the initial public offering is a clear example of this.
Both institutional (banks, insurance companies, investment companies) and individual investors (individuals) will earn 4 per cent per annum by purchasing AzerGold bonds from the initial public offering market. The bonds are expected to have the face value of US$100, a maturity of three years, and a volume of US$20 million. The bonds will be sold at auction on the Baku Stock Exchange. Interest is paid to investors four times a year on a quarterly basis. These conditions are currently considered one of the most favourable offers for the country’s financial market.
Some of the works achieved for the development of this sector in the recent years include increasing market awareness, explaining the benefits of the sector to key players, as well as introducing the Baku Stock Exchange’s Listing Advisory programme.
— NNN-BERNAMA
