ABB (“ABB”) has been working closely with the Ministry of Finance of Azerbaijan (the “Ministry of Finance”), the Financial Market Supervision Authority of Azerbaijan (“FIMSA”) and the Central Bank of the Republic of Azerbaijan to address issues relating to ABB’s financial position and the sufficiency of its regulatory capital in accordance with the objectives of the Presidential Decree dated 15 July 2015.
ABB is currently finalising the preparation of its consolidated financial statements for 2016 and expects these to show a net loss of approximately AZN 1.9 billion, mainly as a result of a negative net interest margin, foreign exchange losses due to the continued devaluation of the Manat against major trading currencies, and increase in provisioning against both its retail and corporate loan portfolios. As a result, its tier 1 capital ratio as at 31 December 2016 is expected to be negative at approximately -4.70%.
In order to address the deteriorating financial position of ABB, the Supervisory Board of ABB has concluded, with the support of the Ministry of Finance and FIMSA, that further measures are urgently required in order to guarantee the long-term viability of ABB.
To this end, ABB has commenced a process of voluntary restructuring in accordance with the applicable provisions of the law of the Republic of Azerbaijan on banks. On 4 May 2017, the Nasimi District Court issued an order commencing a process of voluntary restructuring on the basis of an application of ABB and a proposed restructuring plan. The process will lead to a meeting of all creditors affected by the restructuring plan. If approved by two-thirds of the affected creditors by value the plan will be accepted and become binding on all of them.
The restructuring plan contemplates a restructuring process to be effected through an exchange of ABB senior and junior foreign currency obligations for direct sovereign obligations of the Republic of Azerbaijan.
Pending the implementation of the planned restructuring process, and to ensure equal treatment of all affected creditors, ABB has suspended payments of principal and interest with respect to all obligations to be included in the operation (other than interest under trade finance facilities). To this effect, on 10 May 2017, ABB did not make the scheduled payment of principal and interest under the U.S.$100 million subordinated loan owed to Rubrika Finance Company Limited.
Although the suspension of principal and interest payments is regrettable, ABB considers it a necessary step to ensure a successful outcome of the restructuring process which is in the best interests of all its stakeholders.
ABB will continue to conduct business with its clients in the ordinary course, including all transactions in relation to individual and corporate deposits. All other services and operations of ABB will continue as usual.
Mr Samir Sharifov, Minister of Finance of Azerbaijan, commented:
“The Ministry of Finance has noted with concern the deteriorating financial and capital position of ABB. Re-establishing the financial viability of ABB is critical so that the Bank can continue to provide important banking services to the Azerbaijan economy. The steps that are currently being taken by the Bank are essential for achieving financial stability, and are being undertaken with the full support of the Ministry of Finance. The Ministry of Finance hopes and expects that holders of ABB’s foreign currency obligations will agree to support the proposed restructuring plan so as to facilitate the provision of additional support to ABB from the government. In the meantime, the Ministry of Finance notes with approval that depositors in ABB will not be impacted by the proposed restructuring, and that the Bank’s normal services and operations will continue to be conducted.
I look forward to participating in the important meeting with ABB’s investors in London on 23 May in support of the Bank’s restructuring plan.”
Mr Rufat Aslanli, the Chairman of the Board of Directors of FIMSA, commented:
“We have reviewed the ABB’s restructuring plan and we are confident that the proposed measures will help strengthen the Bank’s financial position and liquidity. As the country’s largest and systemic bank, ABB plays a fundamental role in the banking system’s overall facilitation of payments and social contributions. We are concerned regarding the continuing decline in the financial and capital indicators of the Bank. We believe that implementation of ABB’s proposed restructuring plan, as a precursor to the provision of further support for ABB from the government, is an important step not only for the Bank, but for the entire banking sector of Azerbaijan. We note with approval that the restructuring plan will only affect ABB’s foreign currency obligations, and that depositors will be unaffected by the plan.”
Mr Khalid Ahadov, the Chairman of the Board of ABB, commented:
“ABB is in a difficult financial position, as our financial results for 2016 will show. However, I am hopeful that with the support of holders of our foreign currency obligations for our restructuring plan, the future financial viability of the Bank can be assured. I am gratified for the continuing support of the Ministry of Finance and FIMSA in our current situation, and would ask our important financial partners for patience as we complete this necessary process.
I would like to assure individual and corporate depositors of ABB that they will not be affected by our current restructuring plan. Furthermore, our normal services and operations are unaffected by this regrettable but necessary process.”
ABB has retained Lazard Frères, as financial advisers, and White & Case LLP, as legal advisers, in relation to the planned restructuring process.
Investor Presentation
The proposed commercial terms of the restructuring process and the expected timetable for its implementation will be announced by ABB at an investor presentation that will take place at 11:30 a.m. (London time) on 23 May 2017 at the offices of White & Case LLP located at 5 Old Broad Street, London EC2N 1DW, United Kingdom.
Creditors of ABB who would like to attend the investor presentation in person should e-mail ibar.creditors@lazard.com to register. Investors who are unable to attend in person will be able to follow the presentation via a webcast and teleconference. Investors wishing to attend via webcast or teleconference should register at http://webcast.openbriefing.com/iba_23-05-2017/. The deadline for registration is 11:00 a.m. (London time) on 23 May 2017.
For further information please contact ibar.creditors@lazard.com copy Sabina Abassova, Head of DCM & Ratings at sabina.abassova@ibar.az.
