IBA's American creditors file court objection to debt restructuring plan

By bne IntelliNews June 14, 2017

A group of creditors of International Bank of Azerbaijan (IBA) have filed an objection in a US court against the lender's debt restructuring plan, Reuters reported on June 13.

Amongst the creditors are asset managers Fidelity Management & Research Company and Franklin Templeton Investment Management and hedge funds Promeritum Fund and VR Global Partner.

Together, the group has reportedly lent Azerbaijan's largest bank, which defaulted on $3.3bn worth of foreign obligations in May, some $220mn.

On May 23, the lender presented several options to creditors to swap their obligations for sovereign ones, but in exchange for a reduction in the premium, lower yields and longer maturity rates. State-owned IBA's default came as a shock to creditors because the lender had been rescued from the brink of default in 2015 and the government had given repeated verbal reassurances to creditors that it would cover its debt.

"The debt impairment IBA will seek to carry out and enforce in the United States through the auspices of this Court will be implemented through a process that runs roughshod over certain fundamental rights of IBA's creditors," the creditors said in a statement filed on June 12 in the US Bankruptcy Court in the southern district of New York.

Represented by law firm Shearman and Sterling, the group claimed that the plan would benefit equity holders, "the largest of which are instrumentalities of the republic [of Azerbaijan]".

IBA filed under chapter 15 of the US bankruptcy code in May in order to protect itself against lawsuits from creditors while it is restructuring its debt.

A third of the $3.3bn the lender owns in outstanding debt is to Azerbaijani sovereign wealth fund Sofaz. Creditors have taken issue with the inclusion of Sofaz, which is a depositor, amongst the foreign creditors, because the state-owned entity is expected to vote in favour of the restructuring plan. The sheer size of its exposure dwarfs that of other creditors and their ability to oppose the plan, creditors have argued.

Creditors are to vote on the plan later in June, and two-thirds of them have to support the plan in order for it to go through.

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