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The ‘SOCAR’ revolution in Azerbaijani capital market

IFM_SOCAR Capital
One of the main activity segments of SOCAR Capital is the management of SOCAR Bonds

Azerbaijan-based “SOCAR Capital”, established in 2016, has developed a local capital market infrastructure, along with expanding the country’s investor base and trading volumes on Baku Stock Exchange.

Improving financial literacy, bringing passive cash funds, promoting the access of Azerbaijani companies to capital markets and bringing activities to Azerbaijan’s corporate bond market have been some of the notable achievements of SOCAR Capital.

Knowing SOCAR’s Purpose

SOCAR wants to attract and channel non-active funds into the Azerbaijan economy, thereby promoting the country’s capital markets for companies and creating new alternative investment opportunities in local capital markets.

During an interaction with International Finance, SOCAR Capital CEO Mr. Samir Kerimli said, “One of the main activity segments of ‘SOCAR Capital’ is the management of SOCAR Bonds. The first SOCAR Bonds issued in 2016 for USD 100 million received a subscription of USD 204 million, and this issue created a special turn in the domestic capital markets. The second SOCAR Bonds issued for 100 million USD in 2021 received more than 380 million USD bidding request. Around 60% of the 100 million USD bonds were purchased by individuals.”

Effecting The Changes

Through the issue of SOCAR Bonds, Azerbaijan capital markets experienced a real flow towards fixed income instruments.

“The price has never fallen below its nominal value (USD 1,000). The high level of liquidity, ease of operations and interest payments according to the schedule has aroused great interest in bonds among individuals and legal entities. It has been maintaining the status of the most traded corporate financial instrument on the Baku Stock Exchange for seven years. SOCAR Bonds are Azerbaijan’s first publicly traded securities issued by subscription method and have given incentives to other corporate companies to issue their securities. For this reason, there are dozens of corporate bonds currently circulating in the domestic capital markets,” Kerimli added.

SOCAR Bonds, as of December 2023, account for most of the secondary market operations on corporate bonds (excluding mortgage bonds) in Azerbaijan’s securities market. These bonds ensure high profitability, high liquidity, ease of operations and timely interest payments.

“Our main priority in SOCAR Bonds issued in 2016 and 2021 was that the product was reliable, liquid and guaranteed. During the secondary market operations at the Baku Stock Exchange, the presence of the market maker company over the five-year cycle period also eliminated all liquidity concerns. We also set a face value of USD 1,000, which made it affordable for most investors,” Kerimli told the International Finance.

Long Journey Ahead

SOCAR is cooperating with investment companies registered in Azerbaijan to make the bond processing easy for the customers.

SOCAR’s marketing orientation is based on the concept of societal marketing, to develop the securities market and ensure that the Azerbaijani citizens get a direct share of SOCAR’s income.

“Before issuing bonds for the domestic market, SOCAR implemented many socially oriented projects and is still implementing them today. However, establishing mutually beneficial direct relationships with citizens was a completely new initiative. For this reason, we have formed our bond products in both issues by taking into account the needs and wants of investors, especially individuals. At the same time, these steps led to a serious revival in the domestic capital markets and added value to the economy of our country. And this process still is ongoing,” Kerimli noted.

Azerbaijan’s bond products and the fixed income market were underdeveloped with a partially competitive environment and few profitable and reliable financial instruments before 2016. SOCAR changed the scenario by quickly achieving market leadership as the venture worked in a systematical, flexible and goal-oriented manner.

“During our initial issue, we made 25 million USD in interest payments to individuals and legal entities, and in our current issue, they will receive 22.5 million USD worth of total coupon payments by the end of the term. Altogether, we bring in the highest income to investors in dollars between 2016 and 2026. Our bonds are massive across the country, and in this regard, our leading position continues at the moment. We can increase our records further. Taking into account all these facts, we can state that SOCAR Bonds currently has a STAR position in the securities market according to the BCG Matrix,” Kerimli concluded.

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