Exclusive interview of Konstantin Saroyan, NASDAQ OMX Armenia Stock Exchange CEO, with ARKA agency.
ARKA- Mr. Saroyan, what do you think, why the yield on government bonds is, in fact, equal to that on deposits in Armenia?
K.Saroyan- You are right, the return on government bonds is not really higher. Return on government bonds in the market amounts to 13-14%, and it’s possible to open a bank deposit with 12% per annum. However, despite higher yield on government bonds, shown by a simple comparison, the investors still prefer a bank deposit.
The situation would be quite the opposite if depositors, while making a choice, based on the mechanisms of gauging the price and return of financial assets, where beta coefficient and other indexes influencing the assets’ price and return formation are taken into account. However, investors and depositors, being not well informed on these aspects, do not correlate the instruments and coefficients, ignoring some risks pretty often.
There is also another reason, that is rooted in the mentality stereotypes of the depositors, who regard the liquidity of deposits higher than that of government securities. However, there is food for arguing here, as no one has ever really compared the rate of asset conversion into money.
Whenever a depositor comes to a bank he is offered a deposit, as a deposit contract is standardized and can be made immediately. On the other hand, the same operating personnel is not always well qualified in what refers to government securities. Very often bank branches inform depositors on government securities, but don’t offer them for purchasing.
ARKA- What is your perspective on the future of share and government bonds market?
K.Saroyan– I think, 2012 year will be a turning point for shares. All the prerequisites and possibilities are created for companies. In particular, the companies which will pass the listing will receive tax exemptions for 3 years. However, we should understand, that IPO (initial public offering) requires 6-9 months in contrast to loan allocation process, that can last for two weeks.
Today we negotiate on IPO with a number of companies and market members. We will try to coordinate this tough process and hope to register one or two issues this year.
At the same time, our strategy aims for raising government bonds availability within the next 3-5 years, as they should be sold almost everywhere, including via online mechanisms
In spite of the fact, that the worldwide principal investors to government bonds are financial institutions, we will undertake actions to provide the availability and mass character of these instruments.
And the most important thing is that the government bonds should become a national brand. One should understand that by purchasing a bond he contributes to his country’s development.
ARKA- How can the fact that in 2005 Armenian stock market had 198 issuers and now- just 18, be explained?
K. Saroyan- It can be explained by many thing. First of all, old Soviet enterprises with outdated database closed. Secondly, some companies preferred to discontinue paying for additional listing, even though its price is not high, but companies decided to save on that. Moreover, stock listing requires some definite liabilities on fairness and transparency, in particular, by presenting reports, business with investors, mass media, etc. That’s why many companies quitted the stock market due to being unable to meet the requirements.
Now we have only the companies, which have perspective on working with the stock market, in particular, on attracting new investors. It became clear that cooperation with the stock market will enable the fair companies to receive tax exemptions and attract relatively non-expensive resources. We always welcome such companies.
ARKA- Name three factors, the implementation of which will ensure the Armenian stock’s development.
K. Saroyan- The first factor- formation of new stock market instruments in foreign currency, as for example, there is a high demand in dollar assets. To implement this task we will have to reconsider the struggle policy against dollarization. This, in turn, will create new opportunities, though new risks will arise. Here we will face choosing between risks and new opportunities, without which, if we look globally, Armenia will not be able to develop.
The second factor is stimulating business-motivation. Let me clarify. For example, international organizations provide funds to banks for financing some certain sphere, and banks, in turn, allocate these money via loans. I propose to set a product, that would imply injecting these outer investments, for instance, to companies’ bonds, which are being quoted on the stock exchange. Thus, the mechanism of pouring money into economy wouldn’t change, but the instrument would be altered. It could stimulate the development of the equity market. A bond is , in fact, the same debt and credit for a borrower.
The third factor is a struggle against the shadow economy. Entering stock market arena and having tax exemptions, the shadow business would ask itself if it can save any funds while acting like public and transparent company. Very often our businessmen are not interested in attracting additional incentives, as they just don’t know how to spend them. And we are interested in those companies, which have a definite development strategy for five, ten, twenty years ahead.—0–
