SOCAR Capital, a subsidiary of SOCAR founded in 2016, set a target to ensure full integration of SOCAR Group companies into local and global financial markets, to bring them to the highest value they deserve and to share it with its shareholders.
One of the main segments of SOCAR Capital is the management of SOCAR Bonds, which are debt securities. SOCAR Bonds are investment securities that entitle the issuer to receive interest (coupon) income on pre-determined dates and the right to receive the initial deposit (nominal) at the end of the term of the bond.
A brief look at the history of Azerbaijan’s securities market and SOCAR Bonds: After the restoration of Azerbaijan’s state independence, the Law of the Republic of Azerbaijan on Securities was approved on the 9th of September 1998 by the relevant Decree of the President of the Republic of Azerbaijan. On the 30th of December 1998, the State Committee for Securities under the President of the Republic of Azerbaijan was established. The Committee participates in the formation of a unified state policy in the securities market and ensures the implementation of this policy, as well as the development of the securities market and its infrastructure. In 2016, the Committee was replaced by the Financial Markets Supervisory Chamber. Later, the Chamber was abolished, and its responsibilities were transferred to the Central Bank by the Executive Order of the President of the Republic of Azerbaijan Ilham Aliyev dated the 28th of November 2019 in order to improve the management of the regulatory and supervisory system in the financial services market of Azerbaijan. Today, the Central Bank successfully carries out the functions of licensing, regulation, control, protection of the rights of investors and consumers of financial services.
Based on the State Programme for Development of the Securities Market in the Republic of Azerbaijan for 2011-2020, which was approved by the Executive Order of the President of the Republic of Azerbaijan dated the 16th of May 2011, SOCAR supported an innovation in 2016 to create alternative investment opportunities and financial instruments for Azerbaijan’s citizens. Starting from September 2016, SOCAR issued bonds for the domestic market with the following features:
- Issue amount: 100,000,000 (one hundred million) US dollars
- Nominal value: 1,000 (thousand) US dollars
- Turnover: 5 years
- Annual interest: 5%
- Interest payment period: every 3 months
Although the securities market has existed in the country for many years, after the issuance of SOCAR Bonds, there was a real influx of people into this market. The main reasons for the great interest in SOCAR Bonds were their liquidity, reliability and timely payment of interest. A $204 million order was offered for $100 million SOCAR Bonds. During the sales, preference was given to individuals, and more than 90% of orders belonged to Azerbaijani citizens. Every 3 months, an interest income of $12.5 per bond was transferred to the bank accounts of bondholders in US dollars.
SOCAR Bonds specifics:
- SOCAR is ready to repurchase bonds at any time at the sale price - $1,000:
Generally, the issuing institution guarantees that it will repurchase securities for a certain period of time (for example, after 5 years) at a certain price. Until then, the bonds are traded on the stock exchange, and, of course, their prices increase or decrease. If the bondholder wants to sell it ahead of time, he has to agree on the market price. That is, even if the bondholder finds a buyer, he is forced to sell the securities at the market price, which may be cheaper than the value of the bond. This issue is different in SOCAR Bonds. When the bonds were issued, SOCAR stated that it was ready to buy the security at a selling price of at least $1,000. That is, the bondholder will never suffer. This was, in fact, an unprecedented innovation in the world.
- The bonds are exempt from all taxes for the citizens of the Republic of Azerbaijan:
after the start of secondary market operations on SOCAR Bonds on the Baku Stock Exchange (BSE) on the 17th of October 2016, foreign citizens and legal entities gained access to them along with local investors. The volume of transactions in the secondary market with the original SOCAR Bonds exceeded $201 million. SOCAR Bonds were exempt from all taxes for the citizens of the Republic of Azerbaijan. This was considered one of the most favourable conditions for securities not only in Azerbaijan but in the whole region.
- REPO operation enables bondholders to obtain loans on concessional terms:
In 2017, SOCAR Bonds gave its owners another new opportunity. In November of the same year, REPO operations with SOCAR Bonds were launched. The REPO transaction allowed bondholders to obtain loans on concessional terms (3.5-4.5% per annum) by pledging their securities. As a result, bondholders do not need to sell their securities, they could provide short-term liquidity by raising funds through a REPO at any time. Another factor that makes REPO transactions attractive is that the interest rate is very favourable. Thus, due to the fact that the annual coupon yield of the initial bonds is 5%, the borrowers of the REPO continued to receive an income. As a result, bondholders have shown great interest in REPO transactions. REPO operations were carried out by both legal entities and individuals. More than $36 million worth of REPO transactions were carried out with the initial SOCAR Bonds.
So far, SOCAR Bonds have been the most profitable security in Azerbaijan in US dollars. In the securities market of Azerbaijan, the majority of secondary market operations on corporate bonds (excluding mortgage bonds) fall on the share of SOCAR Bonds. Thus, SOCAR Bonds were the most traded security on the secondary market. SOCAR Bonds accounted for about 70% of all purchase and sale deals on all types of debt instruments traded on the BSE.
See below some of SOCAR Capital’s contributions to Azerbaijan’s capital markets in 5 years:
- Development of local capital market’s structure
- Expansion of the investor base
- Increasing the exchange trading volumes
- Improving financial awareness
- Bringing out-of-circulation financial resources to the economy
- Promotion of Azerbaijani companies’ access to financial markets
- Bringing activity to corporative securities market
- For the first time, mass placement by subscription method
- For the first time, receiving the subscription orders from the investors through several investment companies, banks, ASAN services and ensuring access to the general public
- Fulfilment of all commitments and perfect implementation of operations.
2nd edition of SOCAR Bonds:
Taking into account the numerous requests and great demand from investors for a long time, SOCAR issued new bonds for the domestic market on the 20th of September 2021. The five-year initial maturity of the bonds ended in October 2021, and the bondholders earned a total of $25 million.
New SOCAR Bonds are also issued for a period of 5 years. The total volume of bonds is $100 million, and the price of each of them was set at $1,000 (thousand) during the subscription period. The annual interest rate is 4.5% and interest payments will be made on a quarterly basis (Interest payments: 1st of February, May, August and November). Subscription to SOCAR Bonds began on the 20th of September 2021 and lasted until the 29th of October. Our citizens, local and foreign legal entities registered in Azerbaijan, foreigners with permanent or temporary residence permits in our country and stateless persons can subscribe to the bonds. In the placement, which took place on the 1st of November 2020, priority was given to individuals. Foreign individuals and legal entities will be able to buy bonds from bondholders on the secondary market. SOCAR attracts a market maker to ensure the liquidity of its bonds in the secondary market.
As the term of SOCAR Bonds is 5 years, two years later the term of the bond will be 3 years for the person who purchased the bond in the secondary market. Regardless of when it is purchased, SOCAR Bonds expire in 2026.
The terms of SOCAR Bonds purchased on the secondary market do not differ from the bonds purchased on the primary market. SOCAR Bonds can be purchased from the SOCAR Bonds kiosks established in ASAN service centres 1 and 5, as well as through the investment companies operating in Azerbaijan (AzFinance, Unicapital, InvestAZ, PASHA Kapital, Xalq Kapital, BTB Kapital, IBA-Invest, MFX-Trading, CPM-Invest and PSG-Capital).
Due to its high yield, SOCAR Bonds are currently the most favourable and profitable investment tool in our country. In addition, the population and legal entities show great interest in bonds in exchange for high liquidity, ease of operations and timely payment of interest. SOCAR Bonds have become the first publicly traded securities in Azerbaijan.