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International Bank of Azerbaijan creditors notch London legal victory

Court of Appeal backs holdouts in debt restructuring, while investors eye potential for jurisdictional arbitrage.

Holdouts in 2017’s debt restructuring by the International Bank of Azerbaijan (IBA) scored a legal victory on December 18 when a judgement forcing the lender to recognize their claims was upheld by the Court of Appeal in London.

The decision comes more than 18 months after Azerbaijan’s largest lender surprised markets by announcing plans to restructure $3.3 billion worth of senior debt. The restructuring was vehemently opposed by creditors as local policymakers had repeatedly promised to resolve capital issues at the state-owned bank without bailing in bondholders.

Nevertheless, in July 2017, holders of 93.9% of the bank’s senior debt agreed to a restructuring that involved an exchange into either long-dated Azerbaijani sovereign bonds or new instruments issued by IBA.

The restructuring was done under local law in Azerbaijan and approved by a court in Baku. As some of the debt had been issued under English law, however, IBA was granted a moratorium to prevent creditors enforcing debts in the London courts during the process.

Once the restructuring was completed, the bank applied to have the moratorium made permanent. This would have effectively forced creditors who had not participated in the restructuring to accept one of the options offered by IBA and its shareholders.

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