US dollar-linked manat bonds of SOCAR will protect investors from rise in USD rate - ANALYSIS

Baku. 23 September. REPORT.AZ/ The State Oil Company of Azerbaijan Republic (SOCAR) plans to issue US dollar-linked manat bonds which aims to protect investors from the rise in the US currency.

Analytical Group of Report News Agency states at the end of the term of circulation of securities funds invested in bonds in Azerbaijani manat will be considered in accordance with changes in dollar exchange rate.

Thus, if US-dollar increased after the purchased of bonds, investors will be paid corresponding amount at old exchange rate.

Let's say, investor buys bonds worth 100 000 AZN at current exchange rate of 1.65 AZN/USD.

At a rate of 5% per annum after one year investor must be paid 105 000 AZN. If currency drops below the 1,65 AZN level, then investor would earn more in currency equivalent.

So, for example, if AZN/USD exchange rate is defined at 1.62 at the end of the period, then the investor will get 64 815 USD (105 000/1.62), which means 4 209 USD or 6.9% real income in dollar equivalent. If the exchange rate remains constant at 1.65, the investor will announce real return of 5% as in this case, it will have an opportunity to buy US-dollar at 1.65 AZN. In other words, invested 60 600 USD will become 63 630 USD.

Moreover, if the exchange rate rises to 1.68, then investor will get 62500 USD. This amount is more by 3.1% than 60 606 USD invested. So, the investor will get real return of 3.1% in this case. No additional profit or damage will occur at 1,7325 AZN/USD exchange rate (105 000/60 606). At exchange rate increase to such a level, investor will not get real income in US-dollars.

Also, at exchange rate higher than 1. 7327 AZN/USD, SOCAR will provide the investor's 60 606 USD funds.

So, investor will not suffer losses in any case in dollar equivalent.