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State Oil Fund of Azerbaijanâ€™s spending scheme approved

28 December 2009 14:59 (UTC +04:00)

Baku. Vahab Rzayev - APA-ECONOMICS. Azerbaijanâ€™s President Ilham Aliyev has approved State Oil Fund of Azerbaijanâ€™s main areas of spending in 2010.

According to the spending scheme, funds will be used for the improvement of social conditions and accommodation of refugees and internally displaced persons, transfers to the budget, construction of water supply pipeline to Baku from Oguz-Gabala zone, reconstruction of the Samur-Absheron irrigation system, the Baku-Tbilisi-Kars Railway Project and the State Programme for Study of Youth Abroad in 2007-2015.

In 2010, SOFAZ intends to pursue a conservative investment policy that will prevent the loss of capital and will earn secured gains.
SOFAZâ€™s investment portfolio for 2010 is predicted to total AZN 10.6 billion.

In order to ensure the liquidity, at least $100 million of the assets shall be held in cash.
The Fundâ€™s currency basket is structured as follows:

- 50% - of assets in the U.S. dollars;

- 40% - of assets in the euro;

- 5% - of assets in the GBP.

In addition, 5% of the investment portfolio may be placed in the currencies of countries with sovereign ratings not below A (assigned by Standard & Poor’s and Fitch) or A2 (assigned by Moody’s), or proportionally in the USD, euro and GBP.

With regard to risk management requirements, the actual weighted average investment duration of the investment portfolio is determined by the SOFAZ depending on the situation on the world market and should not exceed 48 months. The currency reserves of the Fund may be invested only in investment assets with a credit rating or in securities of issuers with credit ratings.

The maximum proportion of one financial structure (except depository bank) or one investment asset in the investment portfolio is set at 15% of its total value.

No more than 60% of the total value of the investment portfolio can be offered for the management of foreign managers with taking into account the requirement of not more than 15% proportion.

The projected yield from the asset management for a particular currency is based on the BBA LIBOR interest rate for 3 months.

According to the decree, SOFAZâ€™s foreign exchange reserves shall be invested in the precious metals and stones, any real property and commodities except for transactions on investment assets and their acquisition provided for in the Rules of the conservation, distribution and management of foreign exchange reserves of the SOFAZ approved by a president decree dated 19 June 2001.

In managing SOFAZâ€™s foreign currency reserves, transactions on securities such as arbitrage, swaps, forwards, futures, options can only be carried out with a view to minimize the possible risk (hedging) for a change in price or rate during operations in the financial markets or the optimization of currency basket and asset structure of the investment portfolio.