Daily Management Review

Ireland plays a hand in default of one of the largest post-Soviet banks


06/19/2017


When the largest bank of Azerbaijan wanted to extract hundreds of millions of dollars from funds in neighboring Kazakhstan, it had to go backwards for 2,700 miles to Ireland, writes Bloomberg.



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The International Bank of Azerbaijan (IBA) used dark Dublin companies to sell bonds, which were purchased by the state-controlled funds of Kazakhstan about three years ago.

Now the creditor based in Baku declared a default, and its chief executive officer is in prison for embezzlement, while the national pension fund, estimated at $ 22 billion, is investigating its debt investments.

This economic collapse has shed light on the role of Dublin as a hub for financial transactions initiated in the countries of the former USSR using finely-regulated specially created enterprises known as SPV. In the opinion of critics, they can mask risks and avoid close scrutiny by regulators.

"The Irish authorities should have followed the placement of the IBA more closely", said Konstantin Gurdjieff, financial professor at the Middlebury Institute for International Studies in Monterey, California, who studies the Irish economy. "The central Bank of Ireland needs to learn some lessons from the IBA situation and other scandals with participation of enterprises from the former Soviet republics, which are traded from Irish platforms". 

The Central Bank of Ireland checks transactions with SPV bonds to ensure disclosure of information provided by law, Kathy Philpott's spokesperson said by e-mail. According to her, the reliability of these disclosures is the responsibility of the directors of SPV.

Ireland has developed its tax legislation to create a global center for SPV-enterprises without employees, which are used to borrow money on behalf of corporations around the world. Firms can quickly create SPV structures in a country that are virtually tax-free and often place debt obligations on the Irish Stock Exchange.

The International Bank of Azerbaijan suspended payments on its external debt in May and decided to start negotiations with creditors about restructuring, after the currency crisis in the country led the creditor to the brink of collapse.

Recall, Kazakhstan is trying to return $ 250 million of accumulations of the Unified Accumulative Pension Fund (ENPF) of the country from the Azerbaijani bankrupt bank. The money went to purchase bonds of the International Bank of Azerbaijan, which declared a default.

"We will not be able to return all funds invested in the International Bank of Azerbaijan", said Head of the National Bank of Kazakhstan Daniyar Akishev.

The entire issue of the International Bank of Azerbaijan bonds was bought by the EPPF in October 2014 for $ 250 million. The maturity of the bonds is 10 years; the coupon rate is 8.25%.

source: bloomberg.com






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