Azerbaijani Bank's Restructuring Draws U.S. Creditor Objection

By Tom Corrigan Features Dow Jones Newswires

A group of the International Bank of Azerbaijan's bondholders say the troubled lender's multibillion-dollar debt restructuring shouldn't be recognized and enforced in the U.S., citing a "fundamental lack of fairness to non-Azeri creditors."

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In court papers filed Monday with the U.S. Bankruptcy Court in New York, bondholders owed about $220 million said the proposed restructuring is designed to benefit the bank's owners at the expense of its foreign creditors. The bondholders have asked a judge to deny the bank's request for protection under U.S. bankruptcy law, which would help it implement its debt-cutting plan.

"The Azeri proceeding is rife with abuses sufficient to compel this court to deny enforcement of that proceeding in the U.S.," lawyers for the bondholders said in court papers.

Last month, the state-owned bank sought chapter 15 protection -- the section of the bankruptcy code that deals with international insolvencies -- in U.S. Bankruptcy Court in New York to help it restructure some $3.3 billion in debt. Chapter 15 provides foreign companies with the full benefits of U.S. bankruptcy law, which halt lawsuits and block creditors from seizing assets, but the protections require a judge's signature.

If approved, U.S. recognition would help the bank steer clear of potential disruptions from creditors during and after it emerges from bankruptcy. Judge James Garrity Jr. has already approved provisional protections for the bank, with another hearing slated for June 21.

The International Bank of Azerbaijan is the country's largest lender and has been grappling with a steep decline in oil prices and subsequent currency fluctuations. Despite a series of capital injections from the Azerbaijani government, a formal restructuring process began in Azerbaijan in April, court papers show.

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Bondholders expressed "grave concerns" in court papers about the Azeri proceeding, which they say is being carried out under a new, tailor-made law that went into effect earlier this year. Under the bank's proposed plan, unsecured creditors, owed $2.38 billion, would effectively take a 20% hit, while the bank's owners would be left unimpaired, according to bondholders.

In particular, bondholders say a voting process has been skewed to benefit the bank's owners and that noticing requirements fall far short of what is expected in U.S. judicial proceedings.

The objecting bondholders include funds and accounts managed by Fidelity Management & Research Co., Franklin Templeton Investment Management Ltd., Promeritum Investment Management LLP and VR Global Partners LP.

The bank says getting approval of its U.S. bankruptcy petition is critical to a debt restructuring that it says is essential to its financial stability and to the economy of Azerbaijan, a small oil-rich country on the Caspian Sea.

A spokesman for the bank declined to comment Wednesday. In a statement earlier this month, the bank said "there is a strong track record for the international recognition of bank restructurings conducted under legal regimes similar to the Azerbaijani bank restructuring legislation."

The bank 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. 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.

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

(END) Dow Jones Newswires

June 14, 2017 17:06 ET (21:06 GMT)