ABB Bond Placement

BUY on strong balance sheet and opportunity cost

10VC

Mar 06, 2026

State-owned ABB is placing 10 million AZN in dual-tranche bonds with 10% (1-year) and 11% (2-year) annual coupons. As the largest bank in Azerbaijan and its primary fiscal agent, ABB manages a liquid balance sheet where cash and investment securities account for 65% of customer deposits and 51% of total liabilities. The bank’s credit quality, from reported 2025YE prudential results, showing a total capital adequacy ratio of 18.4%, against regulatory limit of 12% and a net profit of 335.7 million AZN. With a liquidity coverage ratio (LCR) exceeding 180% and a 79% loan-to-deposit ratio, the institution maintains significant buffers against market volatility. Given the 100-150 bps spread over ABB’s own deposit rates and tax-exempt status for individuals, this issuance represents a strong BUY.

Issue Terms

• Issuer: OJSC International Bank of Azerbaijan (ABB)
• Total Issue Size: 10,000,000 AZN
• Tranche Structure:
  • Tranche A: 1-year maturity | 10.0% annual coupon.
  • Tranche B: 2-year maturity | 11.0% annual coupon.
• Nominal Value: 100 AZN per bond.
• Payment Terms: Quarterly coupons | Tax-exempt for individuals (0% withholding).
• Subscription Deadline: March 17, 2026.

Financial Performance

• Capital Adequacy & Leverage: The bank reported a 18.4% Total Capital Adequacy Ratio (regulatory minimum of 12.5%). Tier 1 capital remains robust at 15.1%, indicating low financial leverage and a massive capacity to absorb potential credit shocks.
• Liquidity & Asset Composition: ABB maintains a highly liquid profile, with cash and investment securities accounting for 65% of customer deposits and 51% of total liabilities. The bank’s Liquidity Coverage Ratio (LCR) exceeds 180%, well above the 100% regulatory floor, while a 79.6% Loan-to-Deposit (LDR) ratio provides significant room for credit expansion.

Credit Quality & Probability of Default (PD)

ABB is assessed as a sovereign proxy, with its credit strength intrinsically linked to the Country rating.

• Rating: Ba1 (Moody’s) / BB+ (Fitch).
• Asset Quality: Regulatory NPLs remain low at ~3.4%, with a conservative provisioning policy that provides high coverage for Stage 3 assets.
• Default Risk: The 1-year forward-looking Probability of Default (PD) is estimated at 0.65% - 0.85% - extremely low.

Relative Value & Yield Curve Analysis

The 11.0% coupon on the 2-year tranche offers a significant premium over the current risk-free yield curve, commercial Bank deposits and ABB’s own deposit offering.

*average bank deposit calculated as 9.2% gross minus 10% tax.

Instrument liquidity and general thoughts

This is a unique investment product available directly through the ABB mobile banking app. The app's integration with ABB Invest makes the investment process seamless. Recently, the platform began offering international bond trading, a solution that is unique not only for Azerbaijan but also compares favorably to global platforms like IBKR. We believe the ease of buying through the app, combined with the limited supply of these bonds, will allow investors to exit the instrument quite easily in the secondary market.