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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 BAKU STOCK EXCHANGE Anar Akhundov President As a consequence, the BSE completed 2005 with profit that gives us opportunity to forecast and implement new projects in 2006 according with the capital market development. 2005 is remembered as the year of the 5th anniversary of the Baku Stock Exchange (BSE). Besides that it is necessary to note the quantitative and qualitative growth of the domestic market. This growth is marked by the appearance of new instruments, new categories of investors (including nonresidents) and issuers, growth of profitability in the market and institutional development of market participants. As a consequence, the BSE completed 2005 with profit that gives us opportunity to forecast and implement new projects in 2006 according with the capital market development. It is necessary to express our thanks to our shareholders, partners and market regulators that make more efforts for involving of open market to the process of economic reforms. Total turnover of the BSE for the period of January-November 2005 came to US$ 479.6 million, that is in comparison with the similar period of the last year more than a 5.9 times increase. Moreover, turnover for this 11 months exceeds turnover for the last year by 4.7 times. In 2005 NBA Notes, which appeared in the end of 2004, showed enough positive dynamics to catch the interest of market participants in these instruments. From the above turnover 41.9% resulted from the placement of NBA notes. Turnover in the secondary market in this tool was US$ 24.9 million, i.e. 5.2% of total exchange turnover. HISTORY AND DEVELOPMENT The establishment of a stock exchange was a necessary step in the creation of a modern stock market in Azerbaijan. Due to its geopolitical location Azerbaijan is an important regional center of business activity. In this respect the availability of a stable and developed securities market plays a substantial role in the raising of investors' confidence in the economy of Azerbaijan and the region. The shareholders of the BSE are leading Azeri and foreign banks and investment companies. The share of one shareholder in the capital of BSE is equal to US$ 61,250. The supreme decision-making authority of the BSE is the General Shareholders Meeting. The trading floor of the BSE is equipped with 30 computerized trading stations, 18 of which belong to the shareholders of the Exchange. The other 12 are available for new members. Legal bodies (banks, investment funds, broker firms) involved in professional activities in the securities market with special license from the State Committee for Securities under the auspices of the President of the Azerbaijan Republic can become members of the BSE. FUTURE OUTLOOK Increase of volumes and state securities liquidity Firstly, there is a forecast of US$ 141.4 million for the state budget deficit which is supposed to be funded through a T-bills issue that in theory means the placement of T-bills in the sum of US$ 435-544 million, i.e. more than several times the amount issued in 2005. Secondly, the macroeconomic tendencies that will be affected by the process of denomination of AzM, allow for the continuation of the placement of NBA’s notes in the context of sterilization of the money supply. Within these levels we may then, forecast the volume of notes placed last year, i.e. nearly US$ 217.6 million. Development of capital market and privatization Azerbaijan is at the threshold of a “blue chips” privatization, especially in the telecommunication and transportation sectors. From the point of view of capital market development it will be more expedient to use the method of IPO, in other word initial public offer of stocks to wide range of investors. This type of privatization is currently under discussion in the government. Corporate securities market After the “boom” of corporate bonds in 2004, large issues of non-bank securities are expected. As it is underlined above the development of a given market depends on the government’s desire for a privatization scheme and defined method of stock offering. The BSE is developing listing rules, where requirements for corporate governance and international financial report standards will be reflected. Institutional development Because appropriate legislation is currently in place, the development of the capital market and the expansion of the range of financial tools is expected to foster an environment of increased investment activity. PAGE 50
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 BAKU STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ millions # Shares millions Total Volume Average Daily Volume Total Volume Average Daily Volume Stocks Jan-06 0.65 0.08 0.40 0.05 Feb-06 2.6 0.28 0.39 0.04 Mar-06 10.6 0.82 26.8 2.1 Apr-06 2.6 0.16 3.2 0.20 May-06 8.6 0.61 3.2 0.23 Jun-06 18.6 1.2 9.0 0.60 TOTAL 43.6 0.53 43.0 0.53 Bonds Jan-06 1,103.1 84.9 0.24 0.02 Feb-06 43.6 4.0 0.20 0.02 Mar-06 59.1 3.9 0.25 0.02 Apr-06 59.1 3.9 0.29 0.02 May-06 59.2 3.9 0.28 0.02 Jun-06 96.0 5.3 0.43 0.02 TOTAL 1,420.0 17.7 1.7 0.02 Other Jan-06 2.8 0.56 0.01 0.003 Feb-06 6.4 3.2 0.03 0.01 Mar-06 6.5 3.2 0.03 0.01 Apr-06 16.6 1.8 0.08 0.01 May-06 5.8 0.83 0.03 0.004 Jun-06 19.3 1.9 0.09 0.01 TOTAL 57.4 11.6 0.26 0.05 Market Capitalization (US$ millions) Index MONTHLY STOCK VOLUME (US$ millions) VOLUME BY TYPE (%) Stocks Bonds Other Jan-06 n/a n/a Feb-06 n/a n/a Mar-06 n/a n/a Apr-06 n/a n/a May-06 n/a n/a Jun-06 n/a n/a 20 16 12 8 93 4 3 4 0 Jan Feb Mar Apr May Jun CONTACT INFORMATION Contact Name Mr. Mustafa Mamadov E-mail mustafa@bse.az Website www.bse.az * Please refer to page 48 for the Azerbaijan country report. PAGE 51
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