Depreciation of ruble affects profitability of Azerbaijani State Oil Fund assets

Baku, Azerbaijan, Dec.29

By Emil Ismayilov - Trend:

Depreciation of the Russian ruble had a negative impact on the profitability of the assets of the State Oil Fund of Azerbaijan Republic (SOFAR), denominated in rubles, the head of SOFAR Shahmar Movsumov told Trend.

He said that in accordance with the investment policy of the State Oil Fund, 50 percent of its assets is concentrated in US dollars, 35 percent in euros, up to 5 percent in British Pound Sterling, and 10 percent in other currencies, including the Russian ruble.

As of December 25, 2014, the cost of investment in the Russian market and their share in the total investment portfolio (according to the current exchange rate) respectively amount to $673 million and 1.8 percent. ($540 million or 1.4 percent of the portfolio is invested in the shares of VTB Bank, and $133 million, or 0.4 percent is invested in the acquisition of shopping and office center Gallery Actor in Moscow).

"The slowdown of economic growth in developing countries, including Russia, as well as geopolitical risks taking place in the region, led to a cheapening of the ruble and the exchange rate of a number of other developing countries," said Movsumov. "This, in turn, negatively affected the profitability of SOFAR assets, denominated in Russian rubles."

He went on to add that the market value of shares of VTB Bank as of December 25, increased by $54.4 million (11 percent), compared with the date of their purchase (May 21, 2013).

At the same time, the depreciation of the ruble rate against the US dollar by 62.3 percent had a negative impact on the profitability of investment in shares of VTB Bank (due to rising of costs and dividends, the yield was 73.3 percent], and in the result, the net increase in value of investments in dollar terms amounted to 11 percent.

In the period from early 2014 to December 25, the market value of investments in the shares of VTB Bank decreased by 5.3 percent. Thus, if during this period the profitability of investments in shares of VTB Bank amounted to 43.1 percent, a decrease of $31 million (5.3 percent) was recorded in dollar terms in value of investments due to the depreciation of the ruble rate against the USD by 48.5 percent, Movsumov said.

Gallery Actor shopping and office center was purchased December 25, 2012 at a market value of $133 million. The market value of the property amounted to $133.2 million," said the head of the fund, according to the assessment carried out in late 2013.

A high variability was observed in the value of investments in shares of VTB Bank against the background of the events, but investments of the fund in shares and on the real estate market in Russia do not pursue short-term speculative purposes, but designed for the long term, according to Movsumov.

"At the same time, we believe that VTB Bank, which has a high systemic importance for the Russian financial market, will not face serious problems in the long run," said Movsumov. "The current market value of the bank, as well as the long-term growth of cost of the bank, denominated in rubles, which has been observed in recent years, is the confirmation of this fact."

The State Oil Fund was created in 1999 and its assets were equal to $271 million that time.

The assets of SOFAZ increased by 3.98 percent and exceeded $37,305,300,000 as of October 1, 2014, compared to early 2014 (around $35,877,500,000).

Under SOFAZ's regulations, its funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as solving important national problems.

The main goals of the State Oil Fund include: accumulation of resources and the placement of the fund's assets abroad in order to minimize the negative affect on the economy, the prevention of "Dutch disease" to some extent, promotion of resource accumulation for future generations and support of current social and economic processes in Azerbaijan.

Edited by CN

Follow the author on Twitter: @Emilsmail

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