In accordance with the data by the Ministry of Economic Development, in 2007-2010 it is planned to investigate $38bln in Azerbaijani economy, with 82% to be directed at the non-oil sector. Such amount of investments for the non-oil sector is forecasted for the fist time, as so far lion share of capital investment fell on country's oil sector. It makes clear, that in the near future the non-oil sector will develop rapidly and AIC will be involved in attracting capital to this sector.
AIC was found by the order of the Azerbaijani President issued on March 30, 2006 with the aim to encourage investments to the non-oil sector, renew the material and technological base in the existing enterprises in this sphere.
Initial Priorities
As a company, keen on attracting the internal and foreign investments in the non-oil sector, the AIC since the beginning of its active preparatory work has received a number of proposals from different companies active in this sector. Most of all the local construction companies appealed, but they are not of company's interest, excluding ideas on the construction of big business complexes and production of construction materials.
According the Minister of Economic Development, the construction sector in the country is one rise and in need of state funds. In the contrary as initial priorities the companies specialized in food industry were chosen. At present AIC is considering around 15 projects in the sphere of food and agriculture. In 2007 AIC plans to establish joint ventures with foreign capital in the sphere of water treatment. The telecommunications sector is also considered as the considerable sector that AIC could finance.
Meanwhile, AIC has announced its plans to participate in the Islamic Investment Company, which was initiated by the Islamic Bank for Development within the framework of an international investment conference with the participation of Arab institutions. the participation share of AIC in the investment company to be established upon Shariat principles will be a minimum of 10-15%.
AIC is also very interested in the establishment of production of petrochemical industry in Azerbaijan. The company plans to consider all opportunities, as this market is specific and only several companies are active here. In this stage it is planned to develop a feasibility study of the project, details of the feasibility study and initial talks with potential investors. Initial cost of the project on establishment of petrochemical complex in Azerbaijan is estimated to $500mln. AIC's participation will depend on the number of participants.
In mid-November 2006 the Japanese EBARA, a consultant on the project on construction of a garbage reprocessing plant, plans to present to the Government of Azerbaijan a feasibility study of the project. The Cabinet of Ministers informed Trend that the final variant of the feasibility study will be developed by the end of 2006.
The Government thinks that the feasibility study should include several alternatives with specifying the economic expediency of the construction of one plant with a big capacity, or several plants with a lesser capacity in different areas of Baku. They are likely to be located in Balakhani, Surakhani, Garadagh District, or near the highway between Baku and Sumgayit
The value of the project is preliminarily estimated at в'¬350 m. в'¬50 m. are expected to be granted by EBRD. The Government is about to attract $150 m. on the solid wastes plant's construction from foreign borrowings. That was reflected in the limit on foreign credits against a security of the Government.
A number of proposals have been received from construction companies. Azerbaijan Investment Company (AIC) JSC is to sign 3-4 memorandums on mutual understanding with companies where AIC wants to invest to till the end of 2006. The agreements on investing into the projects will be signed within a month or two after the memorandums are signed. First agreements are expected to be signed in January-February, 2007.
AIC's opportunities
80mln manats of 90mln manats allocated for the formation of the AIC's statutory capital will transferred out of the public budget by the end of 2006. This is enough in this stage for the AIC.
Investments up to $500 mln are likely to be attracted under this amount of the authorized stock. At the same time, we realize that the Company's authorized stock must be extended in the future. However, ASIC's authorized capital will be kept at the existing level during a certain part of 2007. We might increase it up to 300-500 mln AZN for the next year., said Mr. Babayev.
AIC Supervisory Council has established limits for participation in these projects. The highest limit was fixed at the rate of 20% from AIC capital to one project or a structure affiliated with it. To Date, the limit reaches 18 mln. AZN, however, that will vary due to the increase in AIC capital.
Up to 35% (31,5 mln. AZN) might be invested to any sphere from AIC capital. At the same time, the Supervisory Council may make an exception to this clause. If the proposed projects are significant and efficient, this limit might be reviewed.
Minimal amount of investment in one project will not be defined, the beneficiary should take interests in purchase of share in its capital, or to possess enough sum. The shares will be purchased at contract prices with premium or discount.
Frequently, the entrepreneurs are afraid of a right of veto' for blocking the resolutions taken at the general assembly of shareholders and Board of Directors of enterprises, whereas will hold a share. However, AIC regards it as misleading: investment company is interested only in profitability of an enterprise and high profits, but will never hinder its activities. Mroever, the participation of AIC in the projects increases their reliability before the credit organizations.
Problems
The major problem that AIC faced in the beginning of its activities was the absence of companies specialized in the development and estimation of investment projects.
Riad Gasimov, the AIC Deputy Executive Director, said that such situation makes AIC to cooperate with foreign companies for development and estimation of feasibility study of investment projects. Attraction of big organizations with rig experience in estimation of feasibility study is of great significance for us. There is no company in Azerbaijan which could carry out estimation of the market and risks in many spheres of the market, Mr. Gasimov stressed.
Presently, the JSC tries to attract international organizations and with this respect plans to enter the International Venture Capital Association. In the perspective AIC plans to establish or assist several local companies, which would get specialized in these activities. The EBRD and the International Finance Corporation will promote the implementation of these plans.
To Attract Foreign Investments
Attraction of the foreign investments to the non-oil sector of Azerbaijan is the urgent task of AIC and the company is keen to boost their interests in the local companies. At present AIC is in talks with several foreign companies on the establishment of joint ventures and as a result a memorandum of understanding will be signed by end of the year. The company's plans also include conduct of road show for investors in Europe and the United States in 2007.
The British and American investors are showing an interest in various spheres of Azerbaijan, considering the macro-economical situation in the country is attractive. Azerbaijan is a very good market for allocating portfolio investments and the present situation may be a stimulus for its development. We will continue the work in this respect
There are companies interested in investing in Azerbaijan. A list of companies which are interested in investing in Azerbaijan is already known. An agreement has been reached with them to provide them, periodically, with the necessary information on concrete projects. Some investors are expected to answer after the presentation, the Company said.
The Azerbaijan Investment Company (AIC) began the formation of a network of investors interested in participating in Azerbaijani projects. This week, two presentations were held in London and New York, the Executive Director of the Company, Anar Akhundov, informed. The familiarization meeting in Great Britain was organized by the Azerbaijan Export and Investment Foundation (AZPROMO), and in USA, the Company initiated a meeting.
Entrance to Stock Market
About 90 mln AZN are expected to be sent to ASIC's authorized stock at the expense of SOFAZ
Beginning from 2007 AIC intends to attract funds which would enable to participate in bigger projects, as it is impossible to finance big investment projects having capital of 90mln manats. In this respect it is planned to issue bonds, attract international financial institutions. So, AIC has chosen 2 variants for the expansion of its activities joint financing of projects with foreign organizations of attraction of investments in the form of loan instruments for re-investing.
Mr. Gasimov said that from the second half of 2007 it would be possible to estimate the Company's portfolio and in two years to launch issue of euro-bonds
Conclusons
Analysis shows that firstly, the investments company will become a high-profit company in the end. The AIC Executive Director asserted that he intends to entire the dividends to the government. In case of participation in the capital of newly established enterprises, AIC is going to sell its stock at high price in future.
Secondly, though the investment company holds a state status, it will set up the application of modern investment mechanism meeting new and advanced principles. However, it should be transparent enough to attract shareholders.
Thirdly, the Company's activities on the issue of stock and T-bills can give impetus to for survival of the securities market and development of corporate governance. The dividends will be transferred from the enterprises' stock to the government, i.e. State oil Fund, and it means additional income sources for the Fund and increase of capital.