Citigroup sells most Azerbaijan-linked notes since 2008

Sales of structured notes linked to Azerbaijani debt are heading for the busiest year since at least 2008 amid demand for higher-yielding emerging-market assets.

Citigroup Inc. (C) debuted $14.5 million of securities linked to Kapital Bank JSC today after issuing $38.5 million of notes tied to the debt of International Bank of Azerbaijan earlier this year, according to data compiled by Bloomberg. The notes pay coupons of as much as 9 percent, the data show.

Investors are seeking risk in emerging markets as central bank stimulus measures suppress returns on debt issued by companies in developed nations. Average yields on junk-rated corporate bonds worldwide fell to a record 4.92 percent last month compared with a low of 6.88 percent for high-yield notes from emerging-market issuers, according to Bank of America Merrill Lynch index data.

“There is a broad stretch for yield into emerging markets, especially after the European Central Bank’s latest easing,” said Richard Segal, a London-based international credit strategist at Jefferies International Ltd. If the coupon is commensurate with the risk, it will attract investors, he said.

Fitch Ratings ranks Kapital Bank B+ or four steps below investment grade. The ratings company said in December the Baku-based lender operates in a high risk environment because of Azerbaijan’s “weak business climate and limited financial transparency of the corporate sector.”

As it seeks to boost yields for its structured products, New York-based Citigroup also issued notes linked to Russian companies as well as to the sovereign debt of junk-rated nations such as Argentina and Zambia this year, data compiled by Bloomberg show.

Simon Boughey, a spokesman for Citigroup in London, declined to comment on the Azerbaijani credit-linked notes.

(Bloomberg News)

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