Interview of Chief Executive Officer of “Capital Asset Management” Investment Company Tigran Karapetyan to Mediamax Agency and Banks.am portal

- How can the current situation in the market of corporate bonds in Armenia be described?

- In a word – wait-and-see. The financial market itself in the general sense of the word demonstrates waiting trends, and the market of corporate bonds, as a constituent part of the financial market, cannot remain aside these tendencies. One of the main problems, which cause such waiting, is the situation in the currency market. As opposed to other sectors of the financial market, the market of corporate bonds is exclusively expressed and quoted in AMD. Investors, who invest their savings in the market of corporate bonds, take upon themselves the currency risk. Many in due time simply converted these savings from AMD to foreign currency and deposited them in banks.

In the Armenian market, institutes and instruments of hedging are complete absent. I consider this fact one of the most important problems in our currency market. Without hedging tools, it is difficult to urge the potential investors to keep their savings in the market of corporate bonds.

Another one among the basic reasons for the wait-and-see situation is the absence of new investment tools, while this is necessary in conditions, when it becomes more complex to attract investments.

Lack of derivative exchange tools starts showing itself. Leadership in this issue should belong to the Stock Exchange. NASDAQ OMX Armenia should try to promote in the market the methodology of introduction of derivative instruments. Participants of the financial market will welcome this.

Another reason for formation of the current waiting situation is also the fact that even banks and insurance companies do not frequently keep their assets in the market of corporate bonds.

- It became clear from the conversation with NASDAQ OMX Armenia Chief Executive Officer that the exchange, in its turn, waits for investment companies to stir up.

- Here we should take into account one simple reality: the global financial crisis was related to the market of securities, and today everyone, who has savings, is extremely careful as to the market of securities.

The given cautiousness is also present in Armenia. Our market is very small and the participants of the financial market will not be able to independently solve the task of enlarging the market of securities. These are systemic problems, which should be solved with joint efforts. In these conditions, institutional structures – exchanges and regulatory bodies, should take upon themselves the leadership.

- Participants of the capital market have repeatedly stated the necessity to allow issue of bonds, expressed in foreign currency. Do you agree that this necessity exists, and what is the reason that the Central Bank (CB) of Armenia, it seems, avoids giving such permission?

- Besides professional participants of the market, certain issuers have also expressed such a wish. They expressed readiness to realize issues, given that their securities would be quoted in foreign currency.

The approach of the regulatory body is also comprehensible: this suggestion, it seems, is not concordant with CB policy, aiming at reducing the level of dollarization. In this view, I understand the stance of the regulator, but I want to stress that in such situations they might need inadequate decisions. I think that this step can be temporarily allowed, for instance, to allow circulation of such tools for a four year period. 

I don’t think that the market of corporate bonds, expressed in foreign currency, will go forward at such a steady gait that would hinder CB policy. Here one should take into account the effects of scale and volume. Besides, there are mechanisms, with the use of which they may not allow circulation of corporate bond tools in large volumes.

It seems to me that it would be reasonable in this situation to allow 2-3 cases taking place and watch the reaction of the market. I believe that today all participants of the capital market experience this need. This may lead to quality changes in the market. 

- What else is needed to stir up the market?

- Long money. This is the most important factor in the capital market and in entire economy. And only institutional investors may have long money, such as insurance companies, pension and investment funds. Without these structures, we will have no long money. No matter what we say, nevertheless, the overwhelming part of banking assets represents short-term resources, and, consequently, they cannot play an active role in the capital market.

- What are your expectations from the upcoming pension reforms?

- Of course, they are positive. As long as I know, because of the crisis, the government has delayed the transition to the accumulative system for a year – up to January 1, 2011. Nevertheless, development of the capital market in Armenia in the currency situation in many respects depends on the successful process of pension reforms, since as a result of the reforms, long money will appear in our economy.

- Recently they announced exchange privatization of 6 governmental enterprises. Will “Capital Asset Management” participate in the given process and what result, according to you, will they get?

- Such an effort was made in Armenia in 1998-99. A number of enterprises were privatized through the stock exchange, but they did not stay there for long. This means that at that time, the task was not solved.

The government’s initiative, of course, is welcomed. However, one should be extremely careful as to this process for the very idea of privatization at the stock exchange not to be discredited. When there is a task set for privatization through the stock exchange, the goal of the one who sells (in this case it is the government) is not only to sell at a good price, but also attract as many investors as possible, as well as have those enterprises in the market as issuers. It is supposed that as a result of given privatization, additional number of companies will appear on the exchange platforms of NASDAQ OMX Armenia.

I have my own ideas related to this process and I hope that I will have the occasion to consider them with representatives of competent structures. If the process is organized competently, I am sure that everyone – the state, NASDAQ OMX Armenia, investment companies and investors, will benefit.

The goal of “Capital Asset Management” in this process is not only to gain profit. We will be involved in this initiative, if we are sure that these companies will remain on the stock exchange and will not be privatized, using exchange infrastructures, and then leave it. 

- How do you assess the circulation of bonds, placed by your company?

- Even in the current wait-and-see situation, the deals on bonds, placed by us, continue. At the moment, nevertheless, the deals are of fragmentary nature. From my part, it would be a great exaggeration to state that the deals on bonds are a result of investors’ activity. The overwhelming part of the deals solves the task of cash management. This means that a certain company has free financial means for a short period of time and does not want these means to be “idle”. And this is very good: each enterprise should develop the culture of cash management. When there are free means on a certain enterprises’ account, they are simply “idle”. The market of corporate bonds solves this problem.

This gives signals that quality changes start to show themselves in companies’ management. I do not think that this is of mass nature, but there are a number of companies, where they take into account the basic norms of the theory of finances – the notion of temporary cost of money, the essence of which is the following: 1AMD today is not equal to 1 AMD tomorrow.

The temporary cost of money is a most important axiomatic norm in the financial market. Without understanding it, one should not enter the financial market or express professional opinion in it.