International Bank of Azerbaijan Seeks U.S. Court Protection

By Tom Corrigan Features Dow Jones Newswires

The International Bank of Azerbaijan, the country's largest lender, filed for bankruptcy in New York Thursday to aid the restructuring of some $3.3 billion in debt.

Continue Reading Below

Hurt by a steep decline in oil prices and subsequent currency fluctuations, the Azeri bank sought chapter 15 protection, the part of the U.S. bankruptcy code covering international insolvencies. If approved by a judge, chapter 15 would give the bank the benefits of U.S. bankruptcy law, including protections that halt lawsuits and otherwise prevent interference from creditors.

A formal restructuring process began in Azerbaijan in April, court paper show.

The bank, which is majority owned by the Azeri government, says it has taken substantial losses in recent years, despite several capital infusions. According to court papers, the bank has transferred billions of dollars in bad loans to a separate, government-backed bank -- much like the U.S. did during the global financial crisis -- but those steps have proven insufficient.

"The Ministry of Finance has noted with concern the deteriorating financial and capital position of International Bank of Azerbaijan," Samir Sharifov, Azerbaijan's Minister of Finance, said in a statement. "Re-establishing the financial viability of IBA is critical so that the bank can continue to provide important banking services to the Azerbaijan economy."

In court papers, lawyers for the bank say getting approval of its U.S. bankruptcy petition is critical to both the bank and the larger economy of Azerbaijan, a small oil-rich country on the Caspian Sea, nestled between Russia and Iran. The bank says that while it has no operations in the U.S., it routinely uses four correspondent bank accounts in the U.S., which currently hold about $50 million.

Continue Reading Below

"Loss of access to these accounts would stop the bank from transacting in [U.S. dollars]," a representative for the bank said in court papers. "This would irreparably harm its relationships with critical clients, destroy its business reputation, and threaten its ability to continue as a going-concern."

The bank has requested a June 7 hearing on approval of its petition for chapter 15 protection. In his statement, Mr. Sharifov said a meeting with the bank's investors is planned for May 23 in London.

The International Bank of Azerbaijan is based in Baku, Azerbaijan's capital, and has subsidiaries in Russia and Georgia, court papers show. Established in 1992, it now has 36 branches in Azerbaijan and employs about 1,800 people. Court papers say the bank "plays a foundational role in the stability of Azerbaijan's banking system and, by extension thereof, the country's economic development" and "helps link Azerbaijan to the global economy."

The bank is carrying at least $2.3 billion in debt and says it will also restructure a $1 billion deposit from the State Oil Fund of Azerbaijan, the nation's sovereign-wealth fund.

In March, the bank missed a payment to Cargill Financial Services International Inc., its largest creditor, on a $715 million credit facility and has continued to struggle to service its debt obligations.

As of June 2016, the bank reported total assets of about $8.3 billion and total liabilities, including customer accounts, of about $8 billion.

It is represented by White & Case LLP in the U.S. bankruptcy proceeding. Judge James L. Garrity Jr. will oversee the case.

Write to Tom Corrigan at tom.corrigan@wsj.com

(END) Dow Jones Newswires

May 12, 2017 16:06 ET (20:06 GMT)