Breaking the economy’s bias towards oil and diversifying towards other sectors is a fundamental aim for Azerbaijan. An interesting multi-jurisdictional transaction closed in March last year that is evidence of Azerbaijan’s push towards these aims. The deal perfectly fits the state’s programme on non-oil sector development.
Intermet, an Azeri firm specialising in the purchase of raw materials in India and in the processing, production and export of aluminium in Europe, decided in 2004 to establish a cotton processing plant in Fujairah, United Arab Emirates. The suppliers of plant equipment were to be German textile machinery makers, Schlafhorst & Saurer, LTG, Trutschler, and Zinser.
Early on, International Bank of Azerbaijan (IBA) lined itself up as borrower on behalf of Intermet and brought in Société Générale to arrange the €13.7mn loan for on-lending to Intermet. Crucially, IBA acted as a borrower without the additional support of the Azeri state – a landmark first for the insurer Euler Hermes, who agreed to offer comprehensive cover on the buyer credit.
“This challenging transaction was structured with a financing for 100% of the €13.7mn commercial contact value, through the confirmation and financing of a deferred payment letter of credit for the downpayment portion of 15%, and a buyer credit for the remaining 85%,” says Jean-Philippe Pany, director, Europe, Caucasus & Central Asia, global export finance, at SG.
“With the strong and active involvement of SG’s local representative office in Baku, the conditions precedent were promptly fulfilled within two months, allowing the entry into force of the commercial contract and first disbursements under the loan in June. SG’s presence in Dubai to assist locally was also a key factor in this success.”
The deal is the first to be financed under the French bank’s general framework agreement with IBA, and also the first bi-source general framework agreement to be signed between SG and IBA.
Today, SG remains the sole western bank with a representative office in Azerbaijan.
“Azeri risk has been looking better and better for every financial institution but especially to SG which is extending major facilities to Socar, the leading Azeri oil company, and to Azerenerji, the public power company,” says Pany. “Being present since 2000 when the country wasn’t yet oil-rich, SG has always believed in Azerbaijan potential, not only in the hydrocarbons sector but also in infrastructure as well. We see a tremendous potential in financing different sectors of the buoyant Azeri economy in years to come, as we did with this cotton venture project.”
Borrower: International Bank of Azerbaijan (IBA)
Arranger: Société Générale
ECA: Euler Hermes
Tenor: 6 years
Law firms: BM (borrower)
Deal closed: March 2006