Hayk Yeganyan, the CEO of the Armenia Securities Exchange (AMX), shared the accomplishments of 2023 with Banks.am and highlighted the key elements necessary for developing the capital market.

- Mr. Yeganyan, how was the year of 2023 for the development of the Armenia capital market? Were there any new trends in the use of stock exchange tools and, can we speak of growth in the activity of market participants?

- 2023 was quite a successful year for the development of the Armenia capital market. We even maintained the trend of listing at least one new stock annually. It might seem too few, but considering the trend of recent years, after 2020, we had at least one listing each subsequent year. Prior to that, the last listings were in 2008 and 2016, making the occurrence of even one listing commendable. It also indicates a positive dynamic in the sector.

In 2023, the market capitalization surged by tens of billions of drams. The government bond market experienced high activity as well. The most important achievement of the year was the entry of international institutional investors into Armenia’s local dram state bond market. They acquired state bonds equivalent to several hundred million dollars which became a very positive indicator for Armenia’s capital market.

In general, for a healthy capital market development, there are five crucial key components: robust legal and regulatory frameworks and supervisory mechanisms, which is the state - on behalf of its legislative and regulatory bodies; investor base; institutions in need of funding - the economy; financial services intermediaries like investment banks; and infrastructure - depositories and stock exchange.

In Armenia we have the first two. Thirdly, the structures that need money, that is, the business has also developed a lot. We have companies that are eager to attract funds through bonds and even shares, and the thesis that Armenian business does not want to attract money through the capital market is definitely incorrect and unfair. To refute such claims, it is enough to answer the following question: don’t Armenian businesses require unsecured and more attractive debt or new institutional shareholders to facilitate business development? Undoubtedly, such support is necessary for overall development and going beyond the borders of Armenia, while such claims are mainly circulated by those interested individuals, who were to organize this work.

Fourthly, investment banks and brokers are crucial. These are the institutions that generate income by attracting investors, providing opportunities to invest their savings in profitable instruments. This involves building an investor base, earning through transaction commissions, and concurrently collaborating with existing companies, convincing them to issue securities to attract fresh funds and organizing the entire process from issuance to placement and listing, as a result getting income from the placement. The issuer is charged a small percentage, while investors pay a commission for broker service.

We have many licensed companies, but a question might arise even while reading this article: how many investment firms have reached out to people to convince them to invest through them or facilitate an issuance, for them to make placement. A straightforward comparison with the credit instruments market reveals a noticeable difference. These investment companies should engage with both issuers and the public, persuading, explaining the necessity of withdrawing deposits from the bank, and investing in alternative instruments such as stocks, bonds, investment funds, etc. At the same time they must offer technical and advisory support for the implementation of the decision.

To address this issue, we need investment banks and brokers in Armenia with successful international experience, who should have qualified staff and a business plan, according to which they will annually organize a certain number of issuances and attract a specified number of investors from both Armenia and abroad to participate in the Armenian market.

- In 2022, the Warsaw Stock Exchange (WSE) acquired the controlling stake in the Armenia Securities Exchange (AMX), announcing a long-term strategic partnership. How applicable has the Warsaw Stock Exchange’s experience and knowledge been during this period?

- The Warsaw Stock Exchange is a reputable international financial institution. Its investment in the infrastructure of a new country, it signifies that the country is attractive for investments and aligns with European and Western investors’ preferences and complies with the international standards (compliance standards). This adherence to standards serves as an indicator for attracting other investors. It demonstrates that the market is transparent, well-regulated and is not driven by short-term high-risk opportunities, instilling more confidence in investors. One of the most important factors for a foreign investor is transparency and fairness in the market, where manipulations are either impossible or minimal, because if your market operator is an international company, it adheres to international standards.

As for their experience, it is highly relevant to us, given that both Poland and Armenia are post-Soviet countries. Poland stands out as the most dynamic in transformation, showing a successful shift from a planned economy to an open capital economy. Perhaps this is also the reason why Poland has the most active stock market in the post-Soviet countries. They know what is important for the development of the capital market. WSE shares its experience with us, directs its employees to us, including high-ranking officials and invites our employees for training. Having an attentive shareholder is vital. Whenever we need advice, they are ready to assist, work collaboratively to enhance our company and extend its reach beyond Armenia’s borders.

- And what kind of progress has been recorded in the depository services market? Please also elaborate on the role of the Depository in connecting the Armenian and international capital markets.

- As I mentioned, it was a significant year for us. It marked the first instance of international investors buying bonds, and since these bonds are held in Armenia’s central depository, payments and other functions are mostly handled through the Depository. This reinforces our reputation as a reliable partner, facilitating the opening of accounts in other depositories and attracting new investors.

- Who are the key players in today’s corporate bond market and is there a problem in diversifying this market? Overall, what trends were observed last year in both the corporate and government bond markets?

- Yes, diversification is indeed a challenge. The primary goal of a healthy market should be to attract international investors. When international investors engage in your market, it means that it is transparent, interesting and the economy is active. Consequently, the issuance in your market becomes attractive due to the established investor base. This forms the basis for the accessibility and affordability of funds. This was the long-term goal for the development of the Polish capital market, guiding all subsequent steps. They avoided exploiting short-term opportunities that could harm the country’s rating, because their objective was to attract international investors. Attracting investors is a challenging task, requiring a country to establish a solid rating, comply with international laws, rules, and sanctions. You must also be able to prove being such. The involvement of a shareholder like WSE in the Armenian stock exchange is already a significant step towards internationalizing and promoting Armenia’s capital market. Further steps to support this endeavor involve educating intermediary financial service providers, enhancing their capabilities and making the state and corporate bonds of Armenia accessible in the international markets.

We surely need to diversify the investor and issuer base, but influencing issuers can be challenging. We try to convince them to consider issuing, but often the conversation ends when they inquire about the next steps and we say that you have to go to an investment bank for issuance. Despite this, a noticeable trend has been recorded after the government decided to cover the costs. Many, perhaps unconsciously, started showing interest and initiated issuance. For instance, Euroterm recently issued and placed bonds. In other words, there is a growing inclination among issuers, and now it is important for intermediaries to actively engage in convincing them further.

- Do you agree with the opinion that Armenian companies are not eager to go public? What are the primary reasons behind the decision to conduct a public offering of securities?

- Here, we encounter the fundamental question: why do companies go public? There are several reasons. The first is to raise affordable funds because they sell shares and do not pay interest. Or if it is a bond, they acquire a long-term loan without collateral, which is more attractive, as instead of paying both interest and the principal amount every six months or a year, you only pay interest and do not repay the principal amount. Another reason is simply the need for funds or the need for shareholders to assess their assets, for instance, for proper inheritance planning.

Another reason for going public is to enjoy tax benefits. We also have a similar privilege: they are exempt from dividend tax. Currently, it is clear that there is no company in Armenia that does not want these advantages. They definitely want them, but they need someone to present the steps to be taken, the benefits to be gained and organize the process – a task best handled by investment banking companies. Now, the question is which issuer would decline such benefits?

- Mr. Yeganyan, there are ongoing talks about enhancing financial literacy of ordinary consumers. How much emphasis does the Armenia Securities Exchange place on this matter, and have there been positive developments in this regard?

- A comprehensive work should be carried out to enhance financial literacy of the people. In developing countries, brokers carry out this work, organize lectures, online courses, and provide programs to guide people in trading after education. In many countries the government is also involved in such initiatives. Our Central Bank has a similar educational initiative: ABCfinance.

I think more efforts should be taken in this direction. We are planning to have an AMX Academy, and, next month, in collaboration with the European Bank, we will offer over 20 free online courses for our broker-dealers to improve their professional skills. However, we cannot do it alone, we must collaborate with other structures as well.

- The principles of Green Bonds (GBP) are rapidly evolving in international markets. What approaches and planned programs does the Securities Exchange have in this regard?

- This is a global trend that we need to keep up with. We have already issued green bonds once, demonstrating our alignment and willingness to follow international trends. I believe that in a few years, there will be more “green investors” globally. We all need to get ready for it, meaning companies will need to prove they are “green” to obtain permission for issuance. While it is still early to talk about it, we are monitoring the developments. We already have green bonds, but it will be more noticeable in a few years.

- The AMXTrader trading system was launched last year. You described it as an unprecedented program. What new opportunities does it offer to market participants?

- Exchanges worldwide have their primary trading system, which they provide to their brokers through a technical interface. In developed markets, it is common for brokers to have their own trading system, through which they connect to their stock exchange and to the stock exchanges and brokers in other countries. Using their own program, they show available securities and investment instruments to their clients.

Considering that no broker in Armenia had a trading system, meaning they could not provide clients access to the Armenian Securities Exchange, we decided to equip our entire trading system with a program that would enable brokers to share our program with their clients for online trading. The response has been positive, with Ameriabank already partnering with us, to provide its clients direct access to the Armenian government bond market.

Currently we are working with international investors, providing them with direct access to observe the market. Active efforts are underway to enhance cooperation and integration with the Bloomberg system, aiming to make the Armenian government bond market visible on that platform.

Arpi Jilavyan

Photos by Emin Aristakesyan