INVESTMENT INFLOW IN AZERBAIJAN MKT ISTEHSALAT KOMMERSIYA LTD

 

Nowadays the oil sector of Azerbaijan is showing high development rates. There is favourable investment climate formed in our country. Azerbaijan occupies one of the first positions among the countries with transition economy due to its scope of per capita foreign investments. It is delightful to lay stress on the growing from year to year amount of local investments that leaves much behind the dynamics of placement of foreign funds. Several investment projects implemented by MKT Istehsalat Kommersiya Ltd within last several years covered various sectors of the Azerbaijan economy from operations in the securities market when having issued bonds Azerbaijan entities attracted funds from overseas for the first time to investments in construction of the new MKT-Araz football club in Imishli. At the moment the total amount of funds invested in the economy of Azerbaijan exceeds $38.57 million.

 

Investment approach

The investment period of MKT Istehsalat Kommersiya Ltd covers several projects. The construction of a football stadium named after Heydar Aliyev in Imishli became its first implemented project. The amount of investing in the construction of the new stadium made $2.5 million. The official ceremony of opening was held on March 23, 2006 with the participation of President of Azerbaijan Ilham Aliyev.    

To date the investments in the Gee & Oil Factory in Ali-Bayramly reached $5,665,900. The Company almost completed construction of a new plant intended for production of food cottonseed oil in the territory of the former Gee & Oil Factory in Ali-Bayramly.

The complex is provided with new equipment designed in Turkey by request of MKT. It is unique because it is not batch production but was designed by the producer of these lines. Equipment assembling is underway at the moment. The Plant will be started up by the cotton season. It will have two production lines: the first is a lint cotton line (linter production will not be carried out at cotton cleaning plants because all seeds are going to be delivered to this plant where lint will be manufactured), the second is cottonseed oil production line. In future it is projected to arrange oil bottling for retail sale. If previously oil was sold only in cisterns and mainly sent for export, from now on bottled refined oil will be delivered directly to sales outlets both inside and outside of the country.

The start-up of two more facilities in the Heydar Aliyev Avenue, in the territory of the privatized uncompleted construction of Stator plant is underway. The first project is an A-class international trade center & office and hotel center which has already been built. By April 1, 2007 the complex will have been put into operation. The improvement of the territory and finishing work in the building are carried out at the moment. The complex consists of two buildings (9-storeyed and 3-storeyed) connected by an atrium. The complex will have a restaurant along with 9 stores to be leased for offices, 18 hotel apartments equipped on the Junior Suite level, a conference-room for 180 people. It will be equipped in line with contemporary standards and have a restaurant to arrange buffet lunches, a podium for fashion shows and presentations. MKT will occupy 2 stores of the new complex. The ownership right will belong to International Trade Center LLC, the subsidiary company of MKT. To date investing in the project made $6,520,000.

The textile spinning factory for cotton yarn manufacturing is being constructed in the territory of the entity. The factory will have up-to-date equipment from Ritter Company (Switzerland) dated 2006. Its cost makes up nearly $19 million. The productive capacity of the factory will be approximately 7,000 tonnes of production a year. Due to the new equipment, in April MKT is going to manufacture high-quality yarn that has never been produced in Azerbaijan before from Azerbaijan cotton. The Azerbaijan yarn will be supplied to the home market and exported to Turkey and Russia.

Along with this, this year the factory will be provided with new equipment intended for hosiery manufacturing.

 

State-of-the-art technologies

MKT Istehsalat Kommersiya LLC implemented a number of regional projects regarding arrangement of high-quality cotton-cleaning production.

MKT has introduced very serious changes to its work with farmers. Today MKT is the only company in Azerbaijan that has a satellite online communication with all plants. All computers at the plants are connected to the MKT's head office by means of the satellite. Thus, all information regarding operations carried out at the regional plants is fixed in the server in Baku. The plants have electrical scales installed. The whole process is computerized and the human factor in the process of raw cotton processing has been reduced to minimum. This stimulated the growth of farmers' trust towards MKT as the whole process from financial assistance and land plowing to harvesting is transparent.

MKT's total investments in another project implemented in the Yevlakh region amounted to $4,892,000. In late 2005 MKT signed the contract with Valmont Industries Inc (USA). Under the contract terms, American company is responsible for implementing projects on cotton-growing, amelioration and mechanization over the area of 704 ha in Yevlakh area using the state-of-the-art equipment and experience in international management and application of latest agricultural technology. Under the contract terms, Valmont opened for MKT a credit line in amount of over $2.8 million at ExImBank.

Due to that last year the project was launched slightly after the beginning of sowing season, this year MKT is going to test American equipment once more in order to bring the harvest to 35-40 hundredweight/ha, compared to the average country level of 17 hundredweight/ha.

 

From raw cotton to finished products

For already five years MKT has traded in Azerbaijan yarn produced in the Ganja Spinning Factory restored in 2002 at the expense of own funds. МКТ invested $0.7 million more in reconstruction of Ganja Spinning Factory. For more than five years, the company has been selling Azerbaijani yarn from Ganja. With this purpose it has established trade contacts with Russian and Turkish firms to have proved good Azeri yarn traders in their markets. Today MKT's production, both fiber and cotton yarn, secures first places in Russia by sales.

МКТ is also engaged in restoration of acryl threads production in Azerbaijan. With this aim МКТ is implementing one more project: prepares to install acryl and half-woolen yarn lines at Sumgayit Spinning Factory. In this connection in September 2005 МКТ purchased a control stock (68.7%) in Sumgayit Khovlu-Illik ATSC. MKT's total investment in this enterprise has amounted to $4,193,000 so far. It is dismantling old equipment at the factory and repairing the building with following installation of high-tech acryl and half-woolen yarn production lines. Equipment for this new plant has already been purchased in Germany.

 

In the international capital market

MKT Istehsalat-Kommersiya will be recorded in the history as the first Azerbaijani enterprise to have accessed foreign markets with its securities. Azerbaijani entity MKT Istehsalat-Kommersiya, assisted by Parex Banka of Latvia (a sustainable and growing bank ranked among top four commercial banks of Baltic region with €2.55 billion of assets) introduced its bonds to foreign investors last year.

MKT's issued bonds in amount of $5 million with maturity period of 2 years and fixed annual interest rate of 14.4%. Having purchased issuer's bonds, in this case MKT's, an investor actually becomes its creditor. Issuer agrees to pay the bond holder upon the expiry of maturity period its nominal value plus predetermined or easily forecasted stable income as percentage of nominal value. Compared to the share, bonds value is not subject to variation.

 "We wanted to draw funds by issuing bonds as our financial strategy implies diversification of funds, including attraction from abroad", Ikram Karimli underlined.

This case is a unique one because МКТ is the first entity in Azerbaijan to have attracted funds outside the country through bonds. Ikram Karimli, General Director MKT Istehsalat-Kommersiya, said MKT was extremely pleased with the results of bonds placement and he personally expresses his gratitude to the investors for their trust.

In general, one should welcome the success of МКТ, which managed to be first to come to international stock market not only as a raw stock supplier but also as an entity with securities attracting foreign investors. This, in its turn, will enable Azerbaijani business to fully integrate with the global economic community.