AGB Subdebt

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27391
Company name	AzeriGazbank
Country	Azerbaijan
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pend PDS-IR

Date SPI disclosed	June 27, 2008
Projected board date	August 1, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed transaction consists of a subordinated loan of up to $15.0 million to Azerigazbank Open Joint-Stock Company (AGB or the Bank). The proposed loan will qualify as Tier II capital. The investment is intended to support the Bank’s growth in retail and SME segments by expanding its capital base and lengthening the maturity of its liabilities. The proposed project is a follow-on transaction which builds on IFC’s existing long-term relationship with AGB. IFC provided three senior loans to AGB for funding the Bank’s SME lending and leasing operations in 1998, 2003 and 2006. Also, in June 2006, IFC acquired a 17.5% stake in AGB’s capital. The debt and equity investments are coupled by an ongoing advisory service program intended to strengthen AGB’s institutional capacity and to improve the Bank’s operations in key areas. The Bank also participated in IFC’s Corporate Governance Pilot Project in Azerbaijan. By providing multifaceted support through investments and advisory service, IFC is supporting AGB to grow as a key market player in Azerbaijan.

Anticipated development impact of the project

The successful implementation of this project will:

- promote SME lending in the economy;
- develop financial intermediation by increasing the kind of products and services available in the market; and
- underpin the overall growth in the economy, as higher loan volumes will benefit customers, suppliers and new entrants.

IFC's expected development contribution

IFC’s developmental contribution is expected to be in the following areas:

- Enable the Bank to maintain the fast growth of its SME and retail business;
- Provide longer term funding which will increase the Bank’s outreach and the affordability of funding in the country; and
- Help deepen the financial markets, stimulate competition in the financial sector.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.

During appraisal, IFC will analyze the activities proposed to be supported for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:

- The IFC FI Exclusion List and/or
- The applicable National Social and Environmental Laws and regulations and/or
- The IFC Performance Standards

As an existing IFC client AGB is required to develop and maintain a Social & Environmental Management System (SEMS) to screen investments against Azeri national environmental, health, and safety regulations and applicable IFC policies and guidelines and appoint officers responsible for social and environmental risk management. A recent review of the Bank's procedures has identified supplemental actions necessary for the Bank to undertake with regard to its procedures.

AGB will be required to:

- Upgrade its existing SEMS prior to disbursement to the satisfaction of IFC
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the applicable Performance Requirements
- Continue to have staff designated as SEMS officers and continue to submit periodic reports to IFC.

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