Interview of Aram Kayfajyan, CEO of “Armenbrok” Investment Company to “Mediamax” Agency and Banks.am portal

- How did exactly “Armenbrok” become the consultant and the underwriter of the first IPO in Armenia?

- “Armenbrok” OJSC was founded in 1995 and is the first investment company in Armenia. We have always considered deals with shares the main direction of our activity and have always been the leader in circulation of share. In 2007, about 80% of exchange deals with shares, and in 2008, about 60% of the deals, were concluded through “Armenbrok”.

We have always kept to active policy in attracting IPO. For a long period we were in process of negotiations with organizations of the financial sector and even reached a final arrangement with one of them. To enter IPO, the given organization was to start the process of reformation into an open joint stock company, however, the process coincided with the period of the financial-economic crisis, which became an obstacle along the way of the company to conclude the process and enter IPO market.

In case with “Artsakh HPP”, the picture was different. Taking into account active and consistent economic policy of Artsakh government, as well as the fact that the issuer represents the energy sphere, we took the process to its end. Probably, our readiness to do everything possible to assist “Artsakh HPP” in bringing it into compliance with the listing requirements played a decisive role in choosing “Armenbrok”.

- The heads of a number of investment companies believe that now it is not the most favorable period for investments in AMD assets. What was “Armenbrok” guided by, while taking upon itself the risk of IPO placement?

- The process of organizing an IPO was initiated before the fluctuations in the currency market, when the macroeconomic developments of the country were quite stable. Nevertheless, we are pleased that the very process of placement started after corrections in AMD exchange rate.

Of course, now there are very hard times not only because of fluctuations of the currency exchange rate, but also because of the general weakness of economy. Investors now strive to gain as much liquidity as possible. We admit that now it is really not the most favorable time, but, anyway, neither the issuer, nor the underwriter are companies, which are used to retreat.

Undoubtedly, we do not expect that the demand for shares will strongly surpass the offer, but we are sure that the placement will be successful.

- Not much time is left for the end of the placement. How many investors did you manage to attract and what is the volume of shares bought at the moment?

- At the moment, the number of investors is coming close to 300 and the volume of investments - to 500mln AMD. Small and medium investors are a priority for us. It is necessary to bring into circulation shares of as many people as possible, to help them understand what a share is, what rights it provides, improve the culture of investments into share securities in Armenia.

Besides, the more small and medium shareholders there are, the more free-float - volume of shares, which are in free circulation, there will be. Otherwise, when the investor purchases 10 and more percents of the placed shares, it becomes obvious that the investor has strategic plans, related to the issuer, and is not going to sell the purchased share.

Nevertheless, there are a number of potential big investors, which have verbally expressed readiness to purchase large packages of shares, and we will turn to them, if the placement is unsatisfactory.

- What is the number of those big investors? What is the volume of the largest investment, attracted into the shares of “Artsakh HPP”?

- At the moment, the only large investment has made 100mln AMD.

- Are there foreign investors?

- Not yet. Foreign investors preserve interest towards the securities market of Armenia, but now they prefer to keep to a waiting stance. Nevertheless, we hope for certain participation of the Diaspora in the given process.  

- What circulation of “Artsakh HPP” do you expect to see, taking into account the fact that so far debt instruments have been usual for our society, while now we are offered to purchase a share, for which the issuer is not obliged to pay dividends?

- “Artsakh HPP” stresses that it will be paying dividends. The company will deny payment of dividends only in case of a force majéur.

I do not agree to the opinion that debt instruments are usual for our society. The number of state bonds purchasers, to my mind, does not exceed 1% of the population. In case with corporate bonds, almost their entire volume is purchased by institutional investors – banks, investment companies, etc. Of course, their customers also purchase these bonds, but this is not popular either.

The reasons for rare participation of the society in the market of bonds may be the weak information, or the fact that preference is given to banking deposits, despite the fact that bonds in normal conditions provide far more advantages. Of course, in case with bonds, risks also increase: a bond may become cheaper, despite the fact that in normal conditions usually there should be no strong fluctuations. 

In case with shares, though, the price fluctuation may be significant and may depend on numerous factors. We are sure that “Artsakh HPP” shares have a great potential for growth. We are inclined to think that there will be a sufficient number of small and medium investors, and the fact will secure certain circulation capacity for the shares.

- The source of the entire information on the issuer is yet only the very issuer and “Armenbrok” as underwriter. Meanwhile, the investor needs an independent audit conclusion on the financial and technical state of the company. Application of corporate management principles is also necessary. Will an audit of the above-mentioned components be carried out?

- “Artsakh HPP” presented the prospectus of the issue, to which the financial indices of the company for the year 2007, which, of course, have undergone independent audit, are attached. The prospectus was registered in 2008, when the financial indices and the audit conclusion for the year 2008 were not yet ready. Within terms, established by the law, by the end of April, the issuer will publicize the financial indices for the year 2008, which will be confirmed by an independent audit organization.   

In order to create from nothing assets, which are managed by “Artsakh HPP”, one needs over $50mln, however the issuer evaluated its assets almost twice less to make the placement more attractive and to secure high reimbursement of investments.

From time to time, the hydroelectric power plant undergoes capital and minor repairs, and the given type of business does not provide for large running costs.

- What developments do you expect in the capital market of Armenia this year?

- I believe that the most significant event in the capital market of Armenia in 2009 will be the very IPO of “Artsakh HPP”. The participants of the financial sector carry out extremely careful policy, which is natural.

“Armenbrok” cooperates with a large number of foreign investors, in the course of the recent three years we have managed to attract foreign investors to Armenian market of securities at the volume of $15mln and we managed to create about 60 workplaces due to these investments only. We expected that the volume of attracted investments will increase 10 times in the nearest future. However, the global financial crisis led to the fact that investors became significantly more passive, and we keep to an extremely careful and conservative attitude towards the prospects of Armenian market of securities in 2009. At the first stage of the global healing, positive changes will be felt in countries with high liquidity markets.

Positive changes in Armenia and activity in its capital market may be expected only at the 3rd, 4th stages of the global healing.