IFC Helps Build Capital Markets in Azerbaijan

In November 2009 the Baku Stock Exchange launched new rules designed to develop a corporate securities market in Azerbaijan, thanks to IFC.

IFC’s Azerbaijan Corporate Governance Project team, with funding from the State Secretariat for Economic Affairs of Switzerland, worked with the exchange to adopt new two-tier listing rules aimed at developing a secondary market for securities.

The two-tier system requires companies listed in the first tier to comply with higher financial reporting and disclosure standards, as well as good corporate governance practices such as transparent and fair nomination procedures to the Supervisory Board.

IFC Project Manager Caroline Bright said the rules, which include guidelines for selecting independent directors, strict regulation of related party transactions, and strong shareholder protection mechanisms, will encourage Azerbaijani companies to implement corporate governance practices ahead of listing.

“These new listing rules will encourage investment, especially in those companies listed in the top tier,” said Jon Edwards, the London Stock Exchange's senior manager for Russia and the CIS, at the launch event. “A tiered system has the benefit of meeting different needs, and the key is making sure investors are happy.”

Minority and institutional investors will also benefit from minimized risk and the reassurance of investing in well-governed companies.

“IFC’s support in developing these rules is crucial, especially at this moment when we are building the institutional framework for developing capital markets in the country,” said Khayal Abdinov, president of the exchange. “We are happy to have new listing rules in conformity with international standards of corporate governance and disclosure. We expect 10-15 companies to be listed in the first tier during the next year.”

Benefiting Local Firms

Igor Yakovenko of AZEL, an Azerbaijani company that has issued bonds through the Baku Stock Market and is likely to be one of the first companies listed on the top tier, described how these listing rules will benefit local companies.

“AZEL is a positive example of a company that is following the guidance of the heightened corporate governance requirements for the top tier and bringing these to reality,” he said. “They help make the business stable and transparent and will ultimately help us to develop the company and create new jobs."

The IFC corporate governance team is continuing to work with its donor partners in Azerbaijan to improve businesses practices at Azerbaijani joint-stock companies and banks, help them enhance their operations, and increase their ability to attract financing and investment.