Interview of Arno Mosikyan, Head of “Ameriabank” Department for Capital Markets, to Mediamax Agency and Banks.am portal

- How do you assess the situation in corporate bonds and shares market in Armenia? How will the further development of those markets proceed?

- Development speeds in the market of corporate bonds are of course noticeable. Following the results of 2008, circulation of bonds, quoted on “NASDAQ OMX Armenia” Stock Exchange, reached the level of 2.3bln AMD, taking into account the fact that the index in 2006 made 0.48bln AMD.  

Armenian market of shares is not that active yet for one to be able to talk about a formed market. In the course of the entire year 2008, deals at the volume of 260mln AMD were concluded, and about half of them fell on the share of “Almast” plant shares. Thus, talking about the influence of the global financial-economic crisis on the capital market of Armenia, I would like to imply only the market of corporate bonds.

The current situation in the market of corporate bonds can be characterized as a pause, conditioned by toughening of the macroeconomic basis of “risk-yield” correlation. To a significant degree, the uncertainty of prospects to come out of the crisis and expectation of further AMD devaluation have influenced the behavior of investors. 

I will note the fact that the main reason, why investors took their assets out of corporate bonds market, was the expectation of further devaluation of AMD. Back since the beginning of the IV quarter, 2008, investors already expected AMD devaluation and reduction of Armenian GDP. In January-February, 2009, investors found themselves in panic, conditioned by the formed expectations, as a result of which they preferred to withdraw their AMD assets from corporate bonds market and invest them into foreign currency deposits.

And after March devaluation of AMD, investors were ready to discuss the prospects for investments into corporate bonds in Armenian AMD only with reservations.

We believe that two scenarios are possible in the market of corporate bonds. By the end of the III quarter, investors will figure out how the Armenian government’s crisis prevention program is realized and how the country’s economy is coming out of the crisis. In this case, new “risk-yield” correlations will be formed among the investors, and, thus, the market of AMD debt will start functioning according to new rules.

Otherwise, the macroeconomic picture will be vague, and the current uncertainty will be preserved in the capital market. In this case, we believe that the opportunity of issuing bonds in foreign currency will help restore the capital market activity.

- Are legislative changes necessary for issuing bonds in foreign currency?

- The process of turning legislative suggestions into legislative changes and their coming into effect would be quite long-lasting. Thus we consider it more effective to try finding solutions within the terms of the current legislation.

The matter is that if in conditions of relatively stable AMD exchange rate the foreign investors could successfully hedge their risks, converting their assets to AMD ones and enjoying high yield of bonds in Armenian currency, now, when the operating expenses of hedging assets in foreign currency have significantly increased, the expected yield of Armenian assets, expressed in USD, has become in fact negative for foreign investors. 

- How, you think, can be explained the passiveness of Armenian companies in realizing initial public offerings (IPO)? What are the stimuli for stirring up this process?

- Passiveness we witness depends on a few important factors.

It is characteristic of our national mentality that owners of business avoid having other  shareholders in the authorized capital stock of the company, as a results of which the “manager’s institution” suffers.

Operating expenses and liabilities, related to publicity of the company, do not encourage the latter taking up such a step. However, one should note that the above-mentioned expenses should be compared to the real benefit, which is promised for the capital market. The argument for publicity here undoubtedly prevails.

- Won’t “Artsakh HPP” IPO become a signal for other companies?

- IPO of “Artsakh HPP” is a very praiseworthy step; the energy sphere is very prospective. Unfortunately, the placement coincided with the financial-economic crisis, and investors’ problems and expectations were reflected in the placement results. Nevertheless, we hope that in future the given IPO will be successfully continued.

We think that for stirring up IPO processes, there is the need for definite stimuli, in particular, active initiative from the part of the state in this sphere. At a more active stage of state property privatization, the market of shares was not effectively used, but the fact might have become a stimulus for market formation. Nevertheless, we should note that there are yet companies, worthy of IPO, which are the property of the state. Here we talk first of all about infrastructural companies.

- What factors can become a stimulus for encouraging foreign investments inflow to Armenia?

- Basing on the game rules, imposed by the financial-economic crisis, we should note that the opportunity of issue, placement and organization of trade in the secondary market of securities in foreign currency would unambiguously become a stimulus for inflow of capital to Armenia.

The next obstacle is the scantiness of existing investment tools. Investment tools, offered now in our market, are limited to only shares and bonds in local currency. Expansion of investment tools assortment may also cause interest among foreign investors.

I would also like to note the underdevelopment of information systems, which serve the capital market.

- What services does “Ameriabank” offer to issuers and investors? Do you have tools, which have not been used or offered yet in the market, and when do you intend to present those?

- Now, “Ameriabank” offers issuers and investors the following standard services: issue and placement of shares, bonds, Eurobonds, derivative, hybrid and structural securities, American and global depository receipts, as well as consulting of those processes and related investment services.

Some of the above-mentioned services are standard for the Armenian market, they are offered by other participants of the market as well, with the only exception of Eurobonds, as well as American and global depository receipts, since “Ameriabank” offers those tools due to our strategic partner – “Troika Dialogue”.

At present, our team is elaborating and testing three tools, which will undoubtedly be new for the Armenian capital market and will definitely be of interest for both investors and issues. We will talk about these tools in detail during our next meetings.

I will only note that offering of those tools to issuers and investors depends on further developments of the financial crisis and the factor of how Armenia will overcome it and what anti-crisis measures will be realized to stimulate Armenian capital market. Here, in particular, we mean securing the opportunity for issue, placement and circulation in the secondary market of securities in foreign currency. 

- Are the investment-banking (IB) tools of “Ameriabank” demanded in current conditions? Which tool is of more demand today?

- The demand is undoubtedly there, and the number of issuers and investors, who have turned to us, evidences this fact. Of course, the crisis has introduced certain corrections into the operating program of our department for 2008-2009, but the given revision has not made our programs or goals less ambitious or less competitive.

We position ourselves in the market as a corporate-investment bank, which, per se, means that our customers may use traditional corporate-banking services in combination with investment banking tools, as a result receiving a more effective result.

One of the most successful placements in Armenian capital market, which tool place in fall, 2008, became a stimulus for such demand. Here we talk about “IMEX Group” LLC corporate bonds placement, realized by “Ameriabank”.

- According to “Stable Development Program”, the Armenian government has set definite goals for development of the market of shares. How realistic are the set goals?

- As of the end of 2008, the total capitalization of Armenia’s market of shares made 53bln AMD, about 47% of which fell on the share of one issuer, and 99% of the total volume of capitalization fell on the share of five major issuers.

According to “Stable Development Program”, in 2010, it is planned to make capitalization of the market of shares reach 263bln AMD, and in 2021 - up to 2 trillion 200bln AMD, or to 17% of GDP.

We believe that the goal, planned for 2010, is realistic, however not without well-grounded and consistent state support. If at least one backbone enterprise, for instance, “ArmRosGazprom” CJSC, enters the IPO market, the target level of capitalization will be fully secured.

- Are “Ameriabank” investment services available for small and medium enterprises?

- In reality, the cost of debt resources, attracted from the capital market, given other equal conditions, are lower or at least comparable to the interest rate of a bank credit. Consequently, from the point of view of small and medium enterprises (SME), the market of bonds can be considered as competitive.

The decision of SME to attract resources from the capital market depends on the following dilemma: to disclose and provide the public with the entire existing information on the company and attract resources from it or to simply limit oneself to credit relations with a bank, in case of which the information about the company becomes available only for the bank.

- How do you assess the level of competition in IB services market? What are the competitive advantages of “Ameriabank”?

- Undoubtedly, there is competition and it is quite harsh. Of course, there are services, provided by our bank, such as Eurobonds, American and global depository receipts, structural and derivative securities, which are not provided by all banks, but there is competition in the market of standard tools.

The factors, which strengthen competitiveness of “Ameriabank”, I believe, are the strategic support and operative specialized consulting by “Troika Dialogue” Company.

Deposit of demand for our services is our professional team, which possesses specialists, who possess various international qualifications. Due to the encouragement mechanism, implemented in the bank, this team solidly acts to reach one goal: maximum possible result.

Customer relationship management system (CRM) is at the stage of implementation in “Ameriabank”. It will be especially useful to increase work efficiency of the Department for Capital Markets.

The system of quality management ISO 9001:2008, in its turn, allows us constantly improving the quality of provided services, securing continuance of business processes and implementation of mechanisms for gaining and passing experience.