After the entrance of the world\'s largest exchange company NASDAQ OMX to Armenia, many people cherished the hope that it will make the process of “ennoblement” of the Armenian economy and attraction of investments, deprived of political or patriotic motivations, easier and faster. Quite a few were interested in the fact that the stock exchange itself is one of the last points of economic modernization and development, where already large and successful companies enter to attract more investments.

The management of NASDAQ OMX Armenia and its shareholders, nevertheless, realize that the small Armenian import-dependent economy, with objectively limited growth possibilities, cannot independently arouse aggressively growing companies capable to make themselves recognizable on the international arena. That’s why the Stock Exchange is trying to attract perspective companies to the capital market and facilitate stock exchange market development.

Chief Executive Officer of NASDAQ OMX Armenia Konstantin Saroyan talked to Mediamax and Banks.am portal about the prospects of the capital market in Armenia and the plans of the Stock Exchange.

- The first question to you, as a former investment banker, is: what’s going on with the dram?

- I’ll be honest: I have never been interested in currency. Even working at the investment bank I never knew the current currency rate, as I don’t think small fluctuations somehow influence the real economy. The exchange rate lives its own life, based on supply and demand. I don’t follow it and don’t try to analyze it. This is my personal opinion as an individual and as Chief Executive Officer of the Stock Exchange. I’m more interested in the activity on the market and in the volume of deals.

- But the stagnation on the Armenian capital market reached the peak level just after 3 March 2009, when the dram collapsed.

- The connection between the national currency and stagnation on the corporate debt market are not directly proportional. As a result of the crisis and the government bond yield rise, the investors began to consider them as an alternative to corporate debt. In such conditions, the corporate security should be more expensive. Today the banks want to have 18-20% annual interest rate on dram bonds. The companies, capable to attract funds this way, are more interested in getting a dollar bank loan with 9-10% interest rate. Consequently, all the participants of the marker anticipate instruments nominated in foreign currency.

- Are you going to lobby this idea in the Central Bank?

- What the market requires should be lobbied for. I understand that the wishes of the market may run counter to the vision of the regulator. This issue should be voiced and we will do it. The time shows that the ideas and the projects demanded by the market are generally realized.

- You have a rich work experience in investment banking. What do you give to the Stock Exchange?

- We must be more business-orientated and closer to the client. We have to expand the range of our services and increase the level of service. The Stock Exchange currently undergoes difficult times from the point of view of financial stability, that’s why we should focus on additional revenues, which may be ensured only by means of new services and qualitative service.

-Taking a detached view at the Stock Exchange, what shortcomings did you notice in the management?

- Taking a detached view at the Stock Exchange, one feels that it’s a structure which is strongly tied with the Central Bank and many decisions are often made under the influence of the regulator in an administrative order. The market participants don’t take it positively, as the participant of the market wants to make his own decisions.

So, we are going to deal with the issue from this point of view, trying to establish closer contact with the participants of the market and, enlisting the support of the Central Bank, advance planned projects. And we have a lot of projects.

- What do you think, what perspectives does the Armenian market of shares have?

- When I decided to hold the charge of the Stock Exchange, I realized that it must boost the market of shares, though it’s not our direct obligation. Nevertheless, we are negotiating with potential issuers and I think we’ll witness some IPOs in the mid-term perspective. I think both we and the governmental structures should pursue an aggressive policy.

But I have to say that the market needs stimuli. The government created such a stimulus that the companies undergoing listing and meeting definite criteria (at least 20 percent of the capital should belong to minority shareholders, and there should be no less than 100 shareholders) receive tax remissions- 50 percent profit tax reduction. This is an unprecedented step the government has taken several years ago and it’s strange that only one company meets this criterion- “Arpa Sevan” OJSC.

- What does it result from? Is that the preference to maintain shadow turnovers?

- It’s more about the mentality and rejection of principles of corporate management rather than shadow economy.

We should explain to people that shadow economy will be reduced sooner or later, and it is being reduced now: tax administration is being improved and business starts to operate more openly. The next barrier is the principles of corporate management. It’s a certain responsibility which people simply don’t want to undertake.

That’s why we will explain the advantages of that market and attract there and then boost local and foreign investments into securities of these enterprises through promo-companies. I don’t think we’ll have a liquid stock market in 2-3 years but it must at least be the way people could invest in it.

Artsakh Hydropower Plant is a classical example of a successful issuer on the Armenian market. If the first and the second emissions were initiated by the company itself and realized with difficulties, the third emission was initiated by the investors interested in its securities.

I should also mention Araratbank. It issued shares in free circulation pursuing some long-term strategic goals as well as in order to strengthen the bank’s image rather than for attracting funds.

- What potential does the Armenian stock market have on the whole? There is an opinion that it is as limited as is the Armenian economy in its prospects.

- The growth potential of our market is indeed limited. We have large expenses in many spheres limiting the competitive advantages, for instance the foodstuffs. The Armenian products are certainly in high demand on the Russian market but our agriculture is actually limited and it’s impossible to implement large-scale projects in the sphere. Consequently, we need high-technology production. It’s our only possible way.

- How will our market participants benefit from your integration with other members of NASDAQ OMX Group?

- Integration of NASDAQ OMX Armenia with European members of the group is aimed at allowing listed Armenian companies to attract foreign investments through the exchange on the one hand, and facilitate the process of entering foreign markets for Armenian investors on the other.

- Stock markets were historically boosted by governments which placed major infrastructure enterprises they owned. Why doesn’t the same thing happen here?

- I don’t know why it didn’t happen yet, but this subject should be discussed. To be honest, it\'s more pleasant for me to work with the private sector. I quite understand the motives of private enterprises. We speak the same language with the business, whereas the state dialogue takes place on a completely different dimension. The state doesn\'t aim to make its infrastructure enterprises profitable by all means. The goal of the state is to provide the population with this or that service at least possible price and it’s already secondary whether it is unprofitable or not.

- Do you have any plans concerning the introduction of derivative exchange instruments?

- We consider the possibility of introducing a currency hedging tool as it is in high demand.

- You said you were holding negotiations with potential issuers. The IPOs of what economy sectors may be expected in coming years?

- These will be companies in the spheres of retail, construction and agricultural production. I would like to note that agriculture is very interesting especially if take into account the state support, high profitability and steady demand for the production.

Ruben Harutyunyan talked to Konstantin Saroyan.