Frontclear closes a first NDF with Unibank and TCX in Azerbaijan

January 2020. Frontclear arranged and structured a USD single-digit millions AZN/USD non-deliverable forward (NDF) transaction with Unibank Commercial Bank OJSC (Unibank). This transaction has made it possible for Unibank to effectively convert their USD liabilities into AZN liabilities, allowing for Unibank to provide additional opportunities for local currency financing to its clients. The NDF transaction is documented under an International Swap and Derivatives Association (ISDA) Agreement, whereby Frontclear customized the confirmation to overcome legal issues in the Azerbaijani market.

After the double devaluation of the Manat in 2016, the banking system went through several years of turmoil. Access to foreign direct investment was significantly constrained. 2019 marked a cornerstone for the Azeri banking sector. Banks willing to respond to a recovering market and increased credit growth, faced multiple challenges. Credit, legal and operational risks made it an issue for Azerbaijani banks to access global capital markets while simultaneously they were confronted by difficulties matching assets and liabilities and a growing need for currency hedging solutions.

The transaction helped to further clarify certain legal issues related to close-out netting in Azerbaijan, which were mitigated by effective Frontclear deal arranging and structuring. Frontclear is already planning further technical assistance in Azerbaijan, including a seminar Money Market Matters. The latter gives regulatory and market participants a detailed overview of the structure and functions of a stable and inclusive money market. The session will address key system issues preventing Azerbaijani banks from accessing global funding and will be followed-up by practical market trainings.

“We are proud to execute our first transaction in Azerbaijan and the key role we have played in originating the structure that allowed the Azerbaijani bank to access the off-shore NDF market. The transaction strengthens global markets players’ ability to mitigate legal risks in the country and sets a benchmark for the development of Azerbaijan’s money markets going forward.”

Andrei Shinkevich, Senior VP Frontclear.

Chairman of the Management Board of Unibank CB Faig Huseynov stressed that the partnership with the prestigious Frontclear and TCX will create new opportunities for the bank’s customers:

“We are very pleased that the NDF transaction will open up new opportunities for financing local business, which is one of the important targets in Unibank’s strategy. This agreement will provide more opportunities to provide our corporate clients with profitable and non-risky financial resources. Thus, Unibank will be able to increase its support for the development of the real sector.”

Faig Huseynov, Chairman, Unibank CB.

“We are pleased with the Frontclear partnership that enabled TCX to offer an additional way for Unibank to swap its USD liabilities into AZN, enabling Unibank to meet the demand of its customers for Manat funding. TCX is also a beneficiary of this partnership as the Fund did not have the credit appetite to face Unibank or leapfrog currency derivatives from a legal perspective. As Frontclear has diligently covered the credit & legal risk aspects it opens avenues for TCX to venture into direct relationships with more comfort in the future to service the long term relationship of the Fund.”

Jerome Pirouz, Senior VP Structuring, TCX.